Lien on a property: What you need to know

Buying a home is an exciting process, but there are quite a few steps involved before you’ve got the keys in your hand, or you’ve made the sale. Before you commit to the home financially, you’ll want to protect yourself from any legal or financial issues with the property, like a property lien. In real estate, liens are claims put on a property by a lender to collect a debt. Liens may have a negative connotation, but they’re not all scary. Let’s take a closer look at how liens on property work and how you may be able to remove them from your title.

What is a lien?

A lien essentially gives a lien holder the rights to a property or asset until a debt has been repaid. If you’re wondering “What is a lien on a house?”, there are several examples. In real estate, a lien gives a lender the legal rights to the house until you’ve paid your mortgage in full. One of the most common examples of a house lien or property lien would be a mortgage. Property liens can be categorized as voluntary or involuntary, and general or specific.

Voluntary vs. involuntary liens

A mortgage is what’s known as a voluntary lien, meaning you’re consensually granting another party, usually a lender, the rights to your property. Some liens, however, are involuntary. An involuntary lien may be placed on your house if you fail to pay your taxes or repay a debt. This will grant the lender rights to your property until you pay what’s owed, whether you like it or not.

General vs. specific liens

When a property lien is categorized as general, that means any property belonging to the borrower may be sold to repay the debt. In the case of a specific property lien, only the specified property may be sold to satisfy the debt.

Types of house liens

Beyond voluntary or involuntary and general or specific, there are several designations of house liens that could be placed on your home.

• Mortgage lien: If you’re using a mortgage to pay for your home, this loan is considered a mortgage lien. Mortgage liens give the lender the right to foreclose on your home should you fail to make your payments.
• Tax lien: Paying taxes may not be everyone’s favorite activity, but it could beat having a tax lien placed on your house. The government is entitled to do this if you neglect to pay income, estate or gift taxes. If you’re unable to eventually pay what’s owed, the property could be sold to satisfy the debt.      
• Mechanic’s lien: A mechanic’s lien pertains to unpaid labor or material fees owed to a contractor, subcontractor or builder. If you fail to pay these costs, you may end up with a mechanic’s lien on your property. It will only be removed if the debt is repaid, either by you or someone who purchases the property.
• Judgment lien: If you fail to pay a debt to a creditor, they may sue you in court. If they win, a judgment lien could be placed on your property. If it remains unpaid, the creditor has the opportunity to sell your property to recover the money owed.
• Estate tax lien: This type of house lien is placed on the assets of a deceased person’s estate if there are unpaid estate taxes. It’s a way for the IRS or state tax agencies to ensure that the money owed is paid before the remaining assets or property is distributed to the deceased person’s heirs.
• Assessment lien: An assessment lien is placed on a property by a homeowners association (HOA) or municipality if you fail to pay an imposed assessment for property taxes, special improvement district assessments or HOA dues.

What happens when a lien is placed on your home?

Having a house lien could have several outcomes, ranging from mildly inconvenient to something a bit more serious, like a forced sale. If a lien is placed on your home, you may experience one or more of the following situations:

• Forced sale: Depending on the lien and your jurisdiction, the lienholder could be able to impose a forced sale of your property to recover what’s owed if you do not pay the debt in question.
• Impact on credit score: As liens are considered unpaid debts by credit bureaus, they could have a negative impact on your credit score.
• Challenges selling or refinancing: Selling or refinancing your home could be more difficult with a lien on the property. Most buyers want to see a clear title, and banks are less likely to give you a loan if the property is at risk of being seized.
• Priority in claims: If you sell a home with a lien on it, the proceeds will go to paying the lien and you’ll receive the remainder.
• Accrued interest: Because some liens accrue interest, the amount you owe may increase until you’re able to pay.

Who can put a lien on a property?

Liens can be placed on a property by several different entities, public and private:

• Mortgage lenders
• Government agencies
• Contractors and suppliers
• Creditors
• Homeowners associations (HOAs)
• Utility or service providers

How to find liens on a property

Knowledge is power, and whether you’re looking to sell your property or get your finances in order, knowing if there is a lien on your property may help you plan accordingly. You can do this in several ways:

• Check local government offices and public records: Liens are typically filed with your local records office, so this is a good place to start. Some offices may have this information in an online database, but you could also try giving them a call or visiting in person.
• Title search: A title company may be able to perform a title search to locate any liens that may be on your property.
• Order a credit report: In some cases, liens may appear on your credit report. Ordering a copy from a credit reporting agency could provide some insight as to whether there are any liens on the property.

How to remove a lien on a property

If you find yourself with a lien on your property, there are a few ways you may be able to have it removed:

• Pay the lien: The simplest way to remove a lien from your property would be to pay what’s owed to the lienholder.
• Negotiate: In some cases, you may be able to negotiate your debt with the lienholder. See if they are amenable to settling with a partial payment or a payment plan.
• Dispute: If you feel the lien was imposed in error and you’re able to provide evidence, you could be able to get a court order to have it removed.

In summary

Liens are legal claims that help lenders to ensure a debt will be repaid. In the case of a lien on property, a home is used as collateral and may be sold to satisfy the debt, whether you owe money to a lender or a credit card company. A house lien could complicate selling, refinancing or, in a worst-case scenario, keeping your home. In these cases, you’ll likely want to remove the lien, which can be done in several ways. If you have a lien on your home, consider contacting a mortgage expert to help you navigate your options.

Lien on property: FAQs

1. Can a house be sold with a lien on it?

While a house can technically be sold with a lien on it, buyers and lenders are generally looking for a clear title as a lien may mean the home could be seized and sold to repay a debt. Beyond a clear title, selling a house with a lien on it could mean a longer transaction timeline as the lien will have to be resolved, usually with sale proceeds.

2. Is a lien an encumbrance?

Yes, a lien is a type of encumbrance. Encumbrances are legal claims against a property by someone other than the owner. Other types of encumbrances include leases, mortgages, encroachments and restrictive covenants.

3. What is a lien waiver?

A lien waiver allows a counterparty, often a contractor, to waive their right to place a lien on your property. This would protect the owner from having a lien on their home if a contractor or contracting company neglects to pay their subcontractors.

4. Is there a statute of limitations on property liens?

While there are typically statutes of limitations on property liens, the timeframe depends on the type of lien and your local jurisdiction. If you have a lien on your property, consider contacting a legal professional to find what sort of statute of limitations applies to your situation.

5. How many liens can you have on a house?

There is no limit to the number of liens that can be placed on a property, but be aware that you will have to pay each of them, in order, if you sell your home or if it’s foreclosed.