A lien is a financial claim that attaches to a piece of property and can affect the ownership of the property. Usually, a lien is attached when the property is owned by one person but is being used by another.
There are two types of properties where the attachment of a lien can compromise the ownership: personal property and real property often referred to as real estate. The difference between the two is personal property can be the ownership of anything that moves. For example, a car, a cell phone, or clothing is personal property. Real estate is a property that cannot be moved, like land or anything attached to that land, such as a house.
A real estate lien occurs when the lien is placed on real property. A lien is created when a person uses their land as a form of security interest or collateral to secure debt or a loan. For example, Erica owns a piece of land on the edge of town. When Erica becomes suddenly ill, she offers her land to the Bank as collateral for a personal loan so she can pay her medical bills. Because Erica used her land as collateral, the Bank now has legal title to the land.
The Bank does not own the land, and Erica can still use the land as an owner would, but she cannot sell or transfer it until her loan is paid in full. Sometimes liens will automatically attach to the land, but often the creditor, here the Bank, would have to contact the legal system to go through the process of attaching the lien.
What are the Limits on Real Estate Liens?
Most liens can be classified as voluntary or involuntary. Voluntary liens are created through a contractual agreement. Just as Erica did, these lines allow the borrower to use the land as collateral to secure a loan. Voluntary liens also make it possible for the creditor to foreclose on the land or take it away if the borrower does not pay the loan back. Involuntary liens can be imposed by court order, typically when the owner has not paid taxes or in the instance of new construction when the owner has not paid the builder.
Foreclosure is a regular occurrence when a homeowner fails to pay the mortgage. This process forfeits all ownership rights to the property, and when the owner cannot pay off the debt, the property goes to a foreclosure auction. Whatever proceeds are made from selling the property will automatically be used to pay off the liens attached.
There are circumstances where the property is protected against forced sales by creditors or to pay off property taxes. This is generally used to protect a family and widow following the death of a spouse. The homestead exemptions are only observed under state law.
If there is a lien on a debtor’s property when they file for Chapter Seven Bankruptcy, it may be discharged. This is because filing for bankruptcy is a way to remove some or all of outstanding debt. Under Chapter Seven, lien avoidance allows the liens to be discharged from the property and the debtor’s ability to continue possessing the property with full ownership rights.
How Do I Transfer a Property with a Lien?
As mentioned above, when liens are placed on the property, it can prevent the owner from selling the land, especially when several creditors have placed liens on that property. However, this is not always the case. In most instances, liens can be paid off by the proceeds of the sale. This is most common in mortgages.
Sometimes the lien can remain with the land. That is to say, if Erica chooses to sell the piece of land on the edge of town before her personal loan is satisfied, she can contract with the purchaser to take responsibilities on all liens for that property.
How Do Liens Affect Jointly Owned Property?
There are situations where more than one person owns the property. This is considered joint property. In liens with joint ownership, such as joint tenants, two or more people share ownership of the real estate. This ownership is undivided, meaning the owners each own the land in full. If one joint tenant creates a lien by attaching their debt to the property, it is enforceable even if their share of the land is transferred to another owner. However, if the debtor dies, their lien is extinguished, and the other tenants are not responsible for the unpaid debts.
Tenancy in common is similar to joint tenants, except a lien attaches to the debtor’s interest. The lien remains with the property if the property shared is transferred or in the death of the debtor. Additionally, the individuals who join in ownership of a tenancy in common can be responsible for debts not paid by the debtor.
What Else Should be Considered Regarding Real Estate Liens?
Aside from foreclosures, as discussed above, a judgment lien on a property is a court order that allows the creditor to take possession of the property if the debtor does not fulfill a contractual obligation. This is an involuntary lien and usually awarded when the debtor fails to pay a debt, and the creditor filed a judgment with the court. Typically, this does not occur when the debtor has offered property as collateral, such as when Erica contracted with the bank. Instead, the creditor uses the court to place a lien on accessible property that will satisfy what the debtor owes to the creditor.
Do I Need an Attorney for Help with Real Estate Lien Issues?
If you have questions regarding a real estate lien or the processes of offering your property as collateral for your debt, consider contacting a foreclosure lawyer. Their knowledge and expertise can help you navigate the situations and assist you in protecting your property rights.