What Is a Lien in Real Estate? Understanding Legal Claims
A lien in real estate is a legal claim that can affect ownership of property. Learn more about what a lien is, how to identify one, and the action a seller can take to protect themselves in this article about understanding legal claims.
What Is a Lien in Real Estate? Understanding Legal Claims
A lien on real estate is a legal claim that lets a creditor secure repayment from the property owner. Liens represent a creditor's legitimate financial interest in the property that it may foreclose upon if the debt is not paid. Even if the property is sold, the creditor still has a right to collect the debt.
Generally, a lien will attach to a property when someone owes money on the property or on a loan related to it. Creditors use liens to make sure that a loan is paid back in full. For example, a bank may place a lien on a property that it has given a loan to purchase. The lien will remain in place until the loan has been fully paid off.
In many cases, liens can be secured by one type of creditor and then sold to another. This means that the creditor who holds the lien can transfer its rights to a third party who can then collect the debt. This allows creditors to receive payment for debt before the debt becomes overly burdensome.
Types of Liens
There are four common types of liens that are used in real estate transactions. These include mortgage liens, mechanics liens, tax liens, and judgment liens.
A mortgage lien is the most common type of lien. This is a lien given to a lender to guarantee repayment of a loan. If the borrower fails to make payments on the loan, the lender can foreclose on the property, which will satisfy the lien.
A mechanics lien is typically placed against a property by contractors or suppliers who have provided services or materials. Property owners can protect themselves against mechanics liens by ensuring all contractors are paid promptly.
Tax liens can be placed against a property if the owner fails to pay property taxes. Tax liens typically take precedence over other liens, and will remain in place until the taxes are paid.
Finally, judgment liens can be placed against a property if the owner is found liable for damages in a lawsuit. Like a tax lien, judgment liens will take precedence over other liens, and remain until the damages are paid.
Removing Liens
The process of removing a lien from a property varies depending on the type of lien. In most cases, liens will be removed by paying off the debt associated with the lien. This will allow the creditor to be paid and the lien to be removed from the property.
Some liens may also be removed by providing an alternative form of repayment. For example, a creditor may accept a part of the debt in exchange for removing the lien. This may be useful if the debt is no longer collectable but the lien has not yet been removed.
Finally, in some cases, a lien can be removed by filing a court motion or disputing the lien. This process is often time-consuming and complex, and should only be pursued if other methods of removing the lien have failed.
Conclusion
Understanding liens is an important part of any real estate transaction. Liens represent a creditor's legal interest in the property they are attached to, and can be difficult to remove. Familiarizing oneself with the different types and procedures of liens can help property owners protect their interests and avoid unwanted financial obligations.