A lien allows a creditor to obtain possession of a debtor’s property if they become unable to make payments on their debt. Liens are created either by law or contract, and allow the debtor to use the property as a means of payment. Liens are common in instances of mortgage forfeiture and in also connection with construction projects. The laws regulating liens can vary according to state and the type of loan or property in question.
If a lien has been placed on an item of property, the title to the property is said to be “encumbered” by the lien. This is another way of saying that the ability to sell or purchase the property becomes more difficult, since there are unpaid payments in connection with the property.
A lien waiver is an agreement that the creditor will not impose a lien on the debtor’s property in order to obtain payments. The creditor basically relinquishes or forfeits their right to impose a lien through the waiver. The creditor would thus be limited to obtaining payments through the debtor’s credit, bank accounts, or other properties besides the one in question.
There are different types lien waivers:
- Conditional Waiver on Progress Payment: If the claimant has been paid to date on timely basis by debtor, the waiver is effective proof against any lien claim on property
- Unconditional Payment on Progress Payment: This waiver releases all claimant's rights through a specific date
- Conditional Waiver on Final Payment: This waiver releases all claimant rights to file a lien if they have been paid up to date by debtor
The use of lien waivers can be attractive for both parties, since it can encourage a more open form of exchange between the parties. The waiver is typically obtained prior to the loan being issued, or prior to construction being done on a home.
In order to be enforceable, it is important that the lien waiver be in writing and signed by the party that has the authority to file for a lien. The waiver should also give a sufficiently detailed description of the property in question, so that it can be clearly identified. Only the property described in the waiver will be “off grounds” in terms of liens- the debtor may still have to forfeit other property unless these are specifically mentioned in the waiver.
A lien release is another type of written document stating that the debtor has sufficiently paid off their debts and is no longer subject to a property lien. Unlike a waiver, lien releases are typically issued after a loan has been issued or after construction on a home has been completed.
The purpose of a lien release is to make a public showing that the property owner has satisfied their debts and that the title to the property is no longer encumbered. The release has the effect of removing the lien from the property. The debtor must be absolutely certain to have the lien release confirmed in a written, signed document. They should promptly record the lien release in public records.
A lien waiver is issued prior to a loan, and guarantees the debtor that a lien will not be placed on the property. A lien release is issued after the lien has been instituted, and confirms the fact that the property owner has taken the required steps to have the lien removed. Sometimes it may be necessary to double check that a lien waiver or release is valid. These documents are frequently subject to fraud or errors and so should be drafted or reviewed by a lawyer to confirm their accuracy.
Lien waivers and releases are very important legal documents, since they protect a debtor from having their property claimed by their creditors. It is highly advisable to work with a real estate lawyer when issuing or obtaining lien waivers or releases. If a legal dispute arises over the property, the waiver or release can be used as evidence to prove that the debtor is protected from property liens.