A lien is a legal claim attached to a debtor’s property providing notice of an unpaid amount to a creditor. If the debtor sells or refinances a property with a lien attached, the creditor has a right to be paid out of the proceeds of the transaction. In addition, if the debt is not paid, the creditor may have the right to take possession of the property that the lien is placed upon.
Find out more here: What Is a Lien
Can a Lien be Created on Real Estate?
Yes, liens can be placed on real estate or other personal property (e.g. automobiles). Typically, before a lien can be placed on a property, the creditor must go to court with evidence of the unpaid debt and receive a judgment. If a judgment is granted, then the creditor can file a lien on real estate by registering the judgment with the land records office in the county in which the debtor's real estate is located.
What Should I Look out for before Placing a Lien?
The first thing you should do is go to the land records office and see if other creditors have placed liens on the same property. It may be possible that there is already a long list of claims on the property ahead of yours, which might encourage you to seek other approaches to satisfying the debt.
Can the Property Be Transferred without Removing the Liens?
A lien doesn't have to be removed before the property is transferred. The lien simply remains on the property and the new owner of the specific property becomes responsible for it. However, if the buyer demands to receive the property with a clear title, the debtor would have to first pay off all claims on the property before transferring it.
Are There Any Limits on Real Estate Liens?
When the owner sells the real estate, any liens on the proceeds will be paid off with the proceeds of the sale in the order that the claims were perfected, but only after any amount due to the mortgage lender is paid first. There are a couple of limits on your right as a real estate liens holder:
- If the owner falls behind on their mortgage payments and the mortgage lender forecloses on the property, your chances on collecting on the lien are low. A foreclosure sale rarely brings in enough money to pay other claims after the mortgage lender.
- If your lien is attached to the debtor's home, there is another potential limitation. In most states there is a law, called a homestead exemption, which provides homeowners with the right to exempt an amount from being collected of the equity in their home. This amount is from $7,500 to an unlimited amount depending on the state. This exemption only applies to a forced sale of the debtor's home.
- If the debtor declares bankruptcy you’ll face another possible limitation. A debtor can use something called a lien avoidance, which potentially allows a debtor to completely wipe out a lien.
What About Jointly Owned Property?
Liens works differently depending on the form of joint ownership. To find out how a property is owned, you can check the deed in the county recorder's office. If the deed doesn’t specify a specific type of joint ownership, property is a tenancy in common. Liens on joint property are treated as follows:
- Joint tenancy: The lien attaches to the debtor's share of the joint tenancy, and it's enforceable if this share is transferred. If the debtor dies your lien is not valid anymore. Joint tenancy rules state that a lien attached to a share is extinguished by that debtor's death.
- Community property: This can also be called tenancy by the entirety and a lien attaches to the entire property when it's held by married couples. The lien stays attached to the property if it's transferred.
- Tenancy in common: A lien here is attached to the debtor's interest. The lien remains attached even if the debtor transfers, or leaves in a will, his/her ownership to someone else.
Do I Need an Attorney?
Debt collection can be a difficult process and if you do not properly file and record your lien, you could end up getting little or nothing. An experienced business lawyer or real estate lawyer can aid you in protecting or exercising your property rights.