Key Takeaways
- A lien is a legal claim against your property for debts owed.
- Mortgage liens are common and last until the loan is repaid.
- Liens must be cleared before selling or transferring property.
- Tax liens occur if property taxes aren't paid to the government.
Article Summary
A lien is a legal claim on a property initiated when a person owes money and is removed when the debt is repaid.
Lien: Explained in Plain English
Liens are legal claims on property, attached when a person owes a debt and removed when the debt is repaid. Liens are public record.
As a real-world illustration, when a first-time home buyer uses mortgage financing to purchase a home, the lender places a lien on the property and files the lien with a local government. The lien remains as long as the mortgage exists. When the homeowner sells the home and repays the mortgage, the lender releases its lien and all claims to the property.
Placing a lien on a property indicates that the property owner owes money. Liens are tied to properties, not individuals, and remain until the property is sold or transferred and the underlying debt is fully paid.
Liens can be initiated for different reasons depending on the type of debt involved. They act as security for creditors and inform potential buyers or inheritors of the debt tied to the property.
The federal government can also file liens for unpaid income taxes.
Liens: A Real World Example
Consider a homeowner with a mortgage who wants to refinance their home. Refinancing involves replacing the existing mortgage with a new one, often to take advantage of lower mortgage rates or reduce monthly payments. Liens on the property must be resolved before refinancing can occur.
In this scenario, the homeowner satisfies the lien from the old mortgage with funds from the new mortgage. If there are other liens, such as a mechanic's lien for home improvements or a tax lien for unpaid taxes, these must also be paid or addressed during the refinance process.
Frequently Asked Questions About Liens
Get answers to frequently asked questions about liens, including what they are, how they affect property ownership, and what to do if you discover one on your property.
What is a lien?
A lien is a legal claim or right against a property used as security for the payment of a debt. Liens ensure that creditors are paid what they are owed.
How does a lien affect property ownership?
Liens do not transfer property ownership, but they impose a financial claim on the property. Liens must be paid off before the property can be sold or refinanced.
Are there different types of liens?
Yes, there are various types of liens, such as mortgage liens, tax liens, mechanic liens, and judgment liens, each with specific applications.
What happens if a lien is not satisfied?
If a lien is not satisfied, a creditor may force the sale of the property or take possession of it to recover the owed amount.
Can a lien be contested?
Yes, property owners can contest a lien if they believe it is invalid or unjustified. This typically involves legal proceedings.
