Liens: What They Are And How They Work

Liens are legal tools used to protect the interests of creditors and other people who are owed money by property owners. They’re commonly used by banks, lenders, contractors and courts to ensure that property owners pay valid debts, such as mortgage notes or property taxes. When someone files a lien, they hold a legal claim against a piece of property.

Liens are important because they can prevent property owners from borrowing against or selling their homes. In some cases, lienholders can even initiate foreclosure proceedings and sell the property to recoup their money.

What Is a Lien?

A lien is a legal claim against a piece of property that is recorded with the local county, giving the lienholder a legal interest in a property. Liens are generally granted by a property owner or by a court. Once granted or awarded, the lien is filed against a specific parcel of property and recorded with the local county recorder.

When someone has a lien placed against their property, it can prevent them from showing they have clear title if they try to sell their property—which would make the new owner responsible for resolving the lien. It may also prevent them from getting a mortgage or subdividing their property until the lien is satisfied.

How does a Lien Work?

Liens are claims against property that are either granted by the property owner—to a mortgage lender, for instance—or imposed by someone filing a claim against the property owner. Liens can be filed by a local government when a property owner fails to pay real estate taxes, or by individuals who win a judgment against a property owner that goes unpaid.

How To Find a Lien On a Property

You can find out if a property has any liens on it by performing a title search. For several hundred dollars, you can hire a title company to conduct a search. For several hundred dollars more, you can purchase a title insurance policy that guarantees the accuracy of the search results and promises to compensate you for any damages if the company misses a property lien or other title defect.

To find a lien on a property yourself, it helps to know what type of lien you’re searching for. If it’s a property tax lien, you’ll want to contact the office of the tax assessor where the property is located. If it’s a mortgage lien, judgment lien or mechanics lien, contact the county recorder or local courthouse. You may have to conduct the search in person or submit a records request by email or postal mail, but some jurisdictions make the information available online.

If you aren’t looking for a specific type of lien, you may be able to conduct a title deed search through the local recorder’s office. However, the results of such a search won’t come with the guarantees you could purchase from a title company.

Types of Liens

Liens are all a form of secured interest in property, but there are many different types of liens. Some liens are voluntary, granted by the property owner. Other liens are involuntary and are granted by courts or taken by government agencies.

Six common types of liens are:

1. Mortgage Lien

The most common type of lien is a mortgage. This is a lien taken by a mortgage lender whenever it provides a loan against a piece of property. This lien is granted voluntarily by the property owner when they close on their loan—it’s among the pile of documents that homeowners sign when closing on a house.

2. Tax Lien

Tax liens are special liens that are taken against a piece of property when the owner fails to pay their real estate taxes. If tax liens go unpaid for long enough, the government can order a sale of the property in order to recoup unpaid taxes, plus interest and penalties.

3. Mechanics Lien

If you hire someone to work on your property and fail to pay them according to the terms of your agreement, they can file a mechanic’s lien against your property. These liens also can be filed by vendors who supply materials to a job site and are sometimes called materialman’s liens.

4. IRS Tax Lien

IRS liens are filed by the federal government when property owners fail to pay income taxes. These liens are often part of a blanket effort by the government to lay claims against all of a taxpayer’s property in an effort to collect back taxes. If these liens remain unpaid, the government can file to foreclose in an effort to satisfy their lien.

5. Judgment Lien

Judgment liens are claims against a person’s property that are awarded by a judge when the property owner has lost a lawsuit and failed to pay the winner. If you get sued, lose and don’t pay, the claimant can file liens against your assets, including real estate. You won’t be able to sell or borrow against the property without paying them first. And, if you fail to satisfy the lien, the lienholder can file for foreclosure.

6. Child Support Lien

Child support liens are awarded when a property owner fails to pay court-ordered child support. In order to be imposed, these liens must be ordered by a court, just like other judgment liens.

What Is a Lien on a House?

A lean on a house means there’s a public record of a legal claim placed against the property because of an unpaid debt, such as utilities or taxes. The homeowner is unable to sell the property, and lenders will not approve a mortgage for a potential buyer until the lien is lifted.

How To Remove a Lien

There are two ways to have a lien removed. The first way is to contest the lien in court and prove that it’s invalid. If a lienholder can’t prove (or “perfect”) their lien, then it gets dismissed. The other option is to resolve a lien voluntarily. And, while this process is much simpler than contesting a lien in court, it’s still not easy.

Here are the general steps for satisfying a lien:

1. Review the terms of the lien and any underlying agreements with the lienholder to determine how much you owe—or, you can negotiate a pay-off amount directly
2. Remit payment to the lienholder for the amount owed
3. Draft a lien release document and have the lienholder sign it, giving up their interest in your property
4. Have the lien release recorded at the local county recorder’s office to remove the lien from your property

In some cases, the lien removal process is seamless and requires no action on the part of the property owner. For example, whenever a homeowner pays off the mortgage on their house, their lender signs a satisfaction of mortgage and a lien release, giving up their claim against the property.

Similarly, when someone is having a home built and they pay their builder’s final bill, the builder signs a lien release, transferring clear title to the new owner.

How Much Does It Cost To Remove a Lien On a Property?

The cost to remove a property lien depends on the type of lien and the jurisdiction where the lien was filed. In addition to the cost of the lien itself, which you’ll need to pay in full or settle to extinguish the lien, you may also pay administrative fees to the local government and the lien holder.

For example, you might have to pay the county recorder a fee to create a document showing that your mortgage lender has released its lien on your property. You may also have to pay your lender a fee to execute a full reconveyance form stating that it has released its lien. For a mechanics lien, you may not have to pay any fee to record the document showing that the lien was satisfied or canceled.

Types of Loans That Require Liens

• Conventional mortgages
• USDA loans
• FHA loans
• VA loans
• Home equity lines of credit
• Home equity loans

Any type of loan that is secured by real estate generally requires the property owner to provide a voluntary lien on their property in order to qualify for a loan. In addition to real estate loans, even business loans can require liens on specific business property, such as equipment.

Types of Loans That Don’t Require Liens

• Personal loans
• Unsecured lines of credit
• Student loans
• Medical debt
• Credit cards

Unlike mortgages, unsecured loans don’t have liens—that’s why they’re called unsecured. While some of these loans (such as private student loans) are difficult to discharge in bankruptcy, creditors generally aren’t able to foreclose on specific property in order to recoup their money.

Frequently Asked Questions (FAQs)