A lien on property is a type of security interest placed on a piece of property, real or personal, in order to secure a debt or obligation. While the underlying legal theories are different, in a practical sense, a lien is similar to a mortgage, in that the property that is the subject of the lien is taken and sold by the creditor to satisfy the debt of the property owner.
Liens are created either by contract or court order. In contracts, the borrower is offered the property in exchange for future payments. The most common type of contractual lien is a mortgage on a house. Contractual liens are typically voluntary liens because the borrower chooses to attach a lien to property as compensation.
A different type of lien is judicial liens. Unlike contractual liens, these liens are involuntary. Judicial liens are created when a judge gives a party right to another party’s property as a result of a final judgment. This final judgment gives the winning parties a right to a disputed property, but the sheriff’s office must collect the property before the winning party can obtain possession over the property
Can I Discharge a Lien Through Bankruptcy?
No. Filing for bankruptcy will only accelerate the lien collection process. Lien-holders are the first creditors paid when a person files for bankruptcy. It is not uncommon for businesses with twelve or more creditors to find themselves forced into bankruptcy if the business has too many liens.
How Is a Lien Removed?
- Satisfy the debt - If the debt that gave rise to the lien in the first place is satisfied, the lien will be removed.
- Obtain a court order - A court may order for a lien to be removed. A court will typically only remove a lien that was obtained through fraud, duress, or other unlawful means.
- The property Is sold or destroyed - A lien can also be removed if the property the lien is attached to is sold or destroyed. However, the lien may follow the property to subsequent buyers, if they had reason to be aware of it. Fraudulently selling a piece of property to remove a lien will probably not succeed.
- Lien holder possess property or fails to exercise control - A person cannot have a lien over his or her own property, so selling or giving the property to the lien-holder will remove it. Furthermore, a lien can be removed if the lien-holder fails to assert his or her rights under the lien for a continuous period of time.
- Demands for payment made in bad faith - A lien may be removed as punishment to the lien-holder demand more than is owed and that demand is made in bad faith, and involves fraud or threats. Note that a lien is not removed if the lien-holder demands a sum in excess of the amount actually owed, as long as this demand is made in good faith. Good faith generally means the lien-holder reasonably believes that he or she is entitled to the demanded sum.
Do I Need a Lawyer to Remove a Property Lien?
As you can see, there are several options for removing a lien from property. A real estate attorney will be able to explain the various options available to you under the laws in your state.