A lien can be placed on real property to secure a debt or obligation. It creates a security interest in the property until the underlying unpaid debt has been satisfied. It can be seized by the creditor and sold to satisfy the debt.
A real estate lien is usually placed on property by contract or court order. You commonly see a lien on real estate when the homeowner is unable to make their mortgage payment to the lender. Another type of lien is a judicial lien that can be issued by the court against a party’s property in order to satisfy a final judgment.
Thereafter, the sheriff’s office will conduct a sale of property pursuant to the judgment and the lien and provide the proceeds from the sale to the creditor to satisfy the debt.
A lien creates a legal obstacle to the transfer of property, whether that is a through a sale or refinance. It will remain on the property until it is removed. Depending on your state, a lien can follow the title on the property or the debtor.
If a new owner wishes to own the property free and clear, the owner of the property will have to pay off the debt before it can be transferred. Typically, a lien on real estate can be satisfied with the proceeds of the sale so that the new owner can possess the property with a clear title.
Most lenders will work with a homeowner when there is a lien on the property because of the owner’s inability to continue to make the required mortgage payment. The lender will want to avoid foreclosure if possible because a sale in connection with a foreclosure is unlikely to satisfy the amount of the outstanding mortgage debt.
There may be a homestead exemption limitation on what a creditor can do with your property even with a lien against it, but that depends on the who the creditor is. Mortgage creditors are usually not subject to the homestead exemption, only creditors of unsecured debts.
The homestead exemption is determined by your state’s law and is usually based on factors such as the number of dependents in the residence and the age income of the homeowner.
Removing a lien on your real property depends on your state’ laws and the reasons the lien was put in place. Here are some common ways you can remove the real estate lien:
- Negotiate with the Lender: Once you have determined the lien against your property is valid, the most common way to remove a debt is simply to satisfy the debt that gave rise to the lien in the first place. When a lender is forced to foreclose on property, they cannot guarantee full payment of the outstanding mortgage debt.
- Also, if bankruptcy is an option based on the nature of the property burdened by the lien, the creditor may be deprived of any further payment on the debt. Therefore, your lender may be willing to work with you to reduce your monthly payments or allow you to pay off the entire mortgage for a reduced settlement amount.
- You can also work with the lender to sell the house and use the proceeds of the sale to satisfy the outstanding mortgage.
- Obtain a Court order: You can always look more closely at the factual circumstances that gave rise to the lien being placed against your property. Perhaps the creditor has the wrong property or obtained the lien through fraud, duress, or misrepresentation.
- If you are able to establish that the lien was unlawfully placed against your property, then you can petition the court to remove it.
- Lienholder Action: On a related note, even if the lien is placed on the correct property, the lien may be discharged if the lienholder is seeking to collect more money than is actually owed by the debtor and is doing so in bad faith.
- In addition, the court may remove the lien on the property if it was obtained for some unlawful purpose (i.e. in order to intimidate the debtor), or the lienholder failed to give notice or follow proper procedure for obtaining the lien against the property.
- Statute of Limitations: The lien may have been placed on your property for a specific period of time. You can check with your county to determine if the period of time has run out. This will not remove the debt, of course, but it may allow you to sell the property in order to satisfy the debt.
A lien can be placed on your property for different reasons. You should consider consulting with a real estate lawyer to explore all the options available to you in your state to remove a property lien.