A property lien is a legal document that allows a creditor to take possession of a debtor’s real estate property or tract of land if the debtor cannot make their loan payments. When a debtor defaults, the lien will attach to the property as a notice to others that the property owner owes money to a creditor. The purpose of a lien is to ensure that the debtor will eventually repay their debt; otherwise, they will have to relinquish their land as payment.
Liens can be created either by law or through a contract. The two most common examples of when a lien is used are during mortgage forfeitures and in connection with construction projects. However, it’s important to note that the laws regulating liens may vary depending on the state and type of loan or property.
When a lien is attached to a plot of land, the title to the property is considered “encumbered” by the lien, also known as a burden. This makes it challenging to sell or purchase the property due to the outstanding debt payments owed and the potential for future legal action because of the lien.
What is a Property Lien Waiver?
A lien waiver is a contract between a creditor and debtor which guarantees that the creditor will not impose a lien on the debtor’s property to secure payments owed. Once the waiver is signed, the creditor surrenders their right to place a lien on the property and can only collect payments from the debtor’s credit, bank accounts, or other assets not listed in the waiver.
There are different types of lien waivers available, such as:
- Conditional Waivers on Progress Payment: This waiver serves as evidence against any liens placed on the property. However, it is only effective if the creditor has received timely and full payment from the debtor to date.
- Unconditional Waivers on Progress Payment: This type of waiver relinquishes all the creditor’s rights to attach a lien to the property but only through a specified date.
- Conditional Waiver on Final Payment: This waiver releases all the creditor’s claim rights to file a lien if the debtor has paid their dues on time and is up to date with their payments.
When is a Property Lien Waiver Used?
Lien waivers can provide benefits to both parties involved in a loan or construction project by fostering greater transparency and communication. A lien waiver is typically signed before the loan is issued or construction begins on a property.
A lien waiver must be in writing and signed by the party authorized to file for a lien, usually, the creditor, to be legally enforceable. The waiver should also contain specific and detailed descriptions of the property so that the property can be easily identified in case of any dispute.
Clear identification of the property is important to prevent a lien from being placed on that particular property and to remove it from the creditor’s reach. However, the debtor may still need to forfeit other assets unless they are also explicitly mentioned in the lien waiver.
For example, if a homeowner signs a lien waiver for their house, it does not mean they are automatically protected from the creditor seizing their car or other assets. The lien waiver only applies to the property specifically identified in the agreement.
Therefore, debtors should carefully read and understand the terms of the lien waiver before signing it. They should also consider seeking the advice of a lawyer or financial expert to ensure that they fully understand their rights and what assets may still be at risk.
What is a Property Lien Release?
A lien release is a legal document that indicates that the debtor has fulfilled their debt obligation and is no longer subject to a property lien. This document is usually executed after a loan has been issued or after the construction of a property has been completed.
The lien release serves as public notification that the debtor has satisfied their debts, and therefore, the property is no longer burdened by a lien. Essentially, it releases the property from the creditor’s claim.
Debtors must confirm that the lien release has been confirmed in writing and is duly signed. Once confirmed, they must file the lien release with the county records department where the property is located. This filing ensures that the release is a matter of public record and that the lien is officially removed from the property owner’s record.
By obtaining a lien release, the debtor can reclaim full ownership of their property without the risk of the lien. This is especially important when the debtor wants to sell or transfer the property, as it can complicate the transaction if the lien has not been released properly.
What is the Primary Difference Between a Property Lien Waiver and a Property Lien Release?
A lien waiver is a document that is signed before the debtor receives their loan to ensure that no lien will be placed on their property, while a lien release is issued after a lien has already been attached and confirms that the property owner has taken the necessary steps to have the lien removed.
However, these documents are not always valid, as they can be subject to clerical errors and fraud. For this reason, it is recommended to have an attorney review and draft these documents to ensure their accuracy.
In addition, keep records of any lien waivers or releases and any payments made toward the debts in question. These records can serve as proof of the agreement between the parties and can be used to protect the debtor’s property rights in case of a dispute.
For example, a homeowner hires a contractor to build a new addition to their home. Before construction begins, the contractor provides the homeowner with a lien waiver, which states that they will not file a lien on the homeowner’s property if they receive timely payments for their work.
As construction progresses, the homeowner makes all of their payments on time, and the contractor provides periodic lien waivers confirming that they have received payment. Once the project is complete, the contractor issues a final lien waiver, and the homeowner records it with the county records department to ensure no outstanding liens on their property.
Years later, a dispute arises between the homeowner and the contractor over the quality of the work done on the addition. The contractor threatens to file a lien on the homeowner’s property if they don’t receive additional payment.
However, the homeowner can produce their records of all payments made to the contractor and the lien waivers received, which demonstrate that the contractor has already been paid in full and has waived their right to file a lien. This evidence protects the homeowner’s property rights and prevents the contractor from filing an invalid lien.
Should I Hire a Lawyer to Help with Property Lien Waivers and Releases?
Lien waivers and releases are critical legal documents that safeguard a debtor’s property from being seized by creditors. These documents can also be evidence in a legal conflict involving a debtor’s property. If you’re a party seeking a lien waiver or release, seek the assistance of an experienced mortgage lawyer.
Working with a knowledgeable lawyer can help ensure the documents are properly drafted and executed, providing the necessary protections for the debtor’s property. A local mortgage lawyer can ensure that your documents are filed and recorded correctly per the laws of your state.
Keeping these documents current and accurate can protect your property rights and avoid any potential legal complications.
Contact a qualified mortgage lawyer to deal with your lien waivers and releases.