What Is a Lien?

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.

4 Real Estate-Related Lien Types

There are four common types of liens in real estate. Each has specific legal requirements for establishment, enforcement, and release.

Mortgage Lien

When a person takes out a mortgage to buy a home, the mortgage lender places a lien on the property until the mortgage is fully repaid, either through a home sale or refinance. Mortgage liens grant lenders the legal right to repossess and sell the property if the borrower defaults on the mortgage payments.

Tax Lien

Tax liens are placed on a property when a homeowner fails to pay property taxes to the local government. The municipality can place a lien to ensure future payment, and the lien must be satisfied before the property can be sold or refinanced.

Mechanic's Lien

A mechanic's lien is used by contractors or suppliers who have not been paid for work performed or materials provided on a property. Mechanic's liens must be resolved before a home can be sold or refinanced, ensuring contractors recover the cost of their labor or materials.

Judgment Lien

Judgment liens are issued as a result of court rulings where a debtor is ordered to pay a creditor. If the debtor fails to pay, a judgment lien can be placed on their property to secure the owed amount. Judgment liens must be resolved before a property can be sold or refinanced.

Reference: Types of Liens & Why They Happen

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.