A lien on a house is a public record that there is a legal claim against it due to money owed to creditors. That sounds ominous, but a lien isn’t necessarily a bad thing. That’s because there are different types of property liens. For example, if you have a mortgage, that’s a variety of lien on your home. On the other hand, some liens are bad and should be taken care of as soon as possible.
In this story, we’ll go over five types of property liens, describing what they are, how they affect you, and how you can get them removed if necessary.
- If you have a mortgage, you have a property lien.
- Liens can be voluntary or involuntary.
- Failing to pay property taxes can result in a lien.
- A lien can prevent you from selling your house.
- A lien can lead to a foreclosure and losing your home.
What Is a Property Lien?
A property, or mortgage, lien is a legal right or claim against a property that is owed to a creditor. Sometimes, liens are just a normal part of having a mortgage, said Kevin Callender, branch manager and loan originator at Motto Mortgage Direct in Milford, Michigan.
In other scenarios, you should be concerned about a lien on your property because it can determine what control you have over your home. “A lien limits what the owner can do with their home, as the creditor is given the right to be compensated for what is owed to them,” Callender told The Balance by email.
One thing that homeowners may not realize is that the amount of the lien is unimportant.
“If I, as the debtor, fail to make the payments on the debt obligations, the lender has the right to enforce the terms of the loan and foreclose on the property,” John W. Mallett, who is known as “America's Mortgage Coach” and is the author of “Buy Your First Home Today,” told The Balance by email.
“Even if you owed as little as $1,000 and failed to pay the remaining debt, the lender has the right to foreclose and take the entire property without compensation to you,” Mallett, based in Thousand Oaks, California, said.
Types of Liens
There are several types of liens; some are voluntary while others are nonconsensual or involuntary.
A first-mortgage voluntary lien is an interest in real property owned by a lender in case the borrower does not pay on the home, Callender said. “This can give them the opportunity to sell the property for what is owed if the borrower goes into default.”
It’s called the first-mortgage voluntary lien because if you take out a second loan—for example, to renovate your house—that second loan becomes the second voluntary lien on the property.
This type of lien is an involuntary lien from a lawsuit, which can be recorded as a judgment against your property, Callender said. A judgment lien can negatively affect you in a number of ways.
If there’s a judgment lien in place, you can’t sell the home or transfer ownership of the property until the lien is removed.
“If you lose the lawsuit and you owe money to a creditor, the court will award a judgment lien in favor of the lender or creditor,” Mallett said. In addition to real estate, he warned that it could also be attached to your personal property and any future assets or income.
Property Tax Lien
A property tax lien is another type of involuntary lien, and, according to Callender, it’s one of the harsher ones. “This can take a first-lien position over a mortgage,” he said. “The state can put a lien on the property when the property taxes do not get paid and put it up for sale.” In other words, your home could be sold to pay your taxes.
There are other reasons to be concerned about a property tax lien, even if the home isn’t foreclosed on. “A tax lien recorded with the county makes it almost impossible to refinance or to get approved for any financing on your property,” said Mallett, who also is president of MainStreet Mortgage in Westlake Village, California.
Property tax liens make lenders nervous and they constantly monitor owners to ensure they’re paying their property taxes. “If the lender discovers you owe back taxes, in many cases they will pay the taxes and establish an involuntary or mandatory escrow or impound account that will force you to pay your taxes with your mortgage payment,” Mallett said.
Don’t be confused by the title: A mechanic’s lien on your home isn’t the result of not paying for repairs on your vehicle—although there is a mechanic’s lien for that as well. “A mechanic’s lien is involuntary and it comes from work or renovation being done on a home if the debt is not paid,” Callender said.
A mechanic’s lien can also take the first position over a mortgage.
To avoid a mechanic’s lien, Mallett recommends getting the scope of the project in writing and communicating often during the renovation. “These liens often occur when there is a miscommunication between you and the contractor, especially if materials have been purchased or additional labor has been employed,” he said.
But it’s in your best interest to stay on top of the renovation project. “These liens are easy to place by almost any contractor or sub-contractor, but difficult and expensive to get removed, often by court order,” Mallett said.
Condo or HOA Lien
If you live in a condominium or a subdivision with a homeowners association, you agreed to pay monthly or yearly fees for maintenance. And if you don’t pay your dues, this can result in an involuntary lien that is usually second to the mortgage lien.
And here’s something else to think about: You could be affected by other members who have outstanding HOA dues. “If you are current on your HOA fees and want to refinance your home with the best rates and terms available, your loan [still] could be declined by the lender,” Mallett said. “While your loan may be approved, the condo project you are part of could be declined by the lender based on other members with outstanding HOA dues,” the mortgage lender explained.
How To Remove a Property Lien
So how can you get a lien erased? Depending on the situation, most liens can be removed by simply paying the debt to clear the title on the property and filing for a release of lien, Callender said. “In some other cases, a lienholder may agree to a release if a payment plan is set up,” he noted.
In addition, if you think the creditor is in error or the lien was fraudulently obtained, you can go to the appropriate court and ask to have the lien removed.
If the debt causing a lien is legitimate, you may be able to work with an attorney to reach an agreement to pay a lower amount to settle it.
To avoid any confusion after you’ve paid, he recommended completing a release-of-lien form and having the lienholder sign it (with a notary present). Then file the release form at the county recorder’s office so it’s a public record.
The Bottom Line
A lien on your home can be voluntary or involuntary. A voluntary lien is not a cause for concern. However, an involuntary one can severely limit what you can do with the home, and may result in you losing possession of it if it’s not resolved.
Frequently Asked Questions (FAQs)
What happens if you buy a house with a lien on it?
As a general rule, you can’t purchase a home with a lien on it because homeowners usually aren’t allowed to sell it, and most mortgage companies won’t approve a loan for this type of home. If a buyer purchases a foreclosed home, it is their responsibility to pay the lien.
How do you know if there’s a lien on your house?
Your local secretary of state or county clerk keeps property records information and can provide these details. You can typically search for this information online.
How long is a lien on your house in effect?
When you purchase a home with a mortgage, a lien is added automatically, and it lasts for the duration of the loan. Suppose you paid off the lien on your home, but the original lending bank is out of business? If the bank failed in the past few years and was purchased by another bank, you should contact the latter. The FDIC may also be able to help you to get a lien release in this case.