Most homeowners have heard of a lien, but many do not understand exactly what it is. Buyers usually know they don’t want to deal with a house that has a lien, but don’t understand why it matters.
While you do not want a lien to be placed on your property, it is not uncommon and it is not the worst-case scenario.
Understanding what a “lien” is and how it works will help you to know how to deal with it in your situation.
When you borrow money and are unable to pay it, the creditor has the option of putting a lien on your property. A lien is a contract that lays claim to a portion of the property for the amount of the debt that you owe to the creditor.
If there is a lien on your property you are limited in your options of what you can do with the property. You are not able to obtain a home-equity loan or a second mortgage with an existing lien on the property.
When you are ready to sell you are required to pay the total of the lien off from the proceeds of the sale.
There are several different types of liens, but three that are the most common:
Mechanic’s Lien – Contractors who are completing work at your house may place a mechanic’s lien on your house. This gives them extra insurance that they will be compensated for the work they are doing.
Judgment Lien – This type of lien comes as a result of a lost court case or unpaid attorney fees. If you are unable to pay on your judgment there will be a lien placed on your property until it has been paid.
Tax Lien – This kind of lien is placed on your property if you have not paid your county, state or federal taxes.
Once a lien is placed you will want to act to have it removed as quickly as possible. The easiest and most common way to remove a lien is by settling the debt with the creditor. You can either negotiate a payment plan or pay the debt in full. If you have a tax lien on your property you can see about establishing a payment plan.
If you have paid a debt the lien should be removed. If there is a lien on your house that you do not believe should be there you can file a lawsuit against the lien. The court will look at the facts and determine if the lien should be removed or if it is justly placed and you are still required to pay before having it removed.
The sound of a lien can be scary and overwhelming. If you have a lien placed on your house you will want to work to repay the debt to take back complete possession of your home.
If you are planning on selling and have a lien on your property, know that you will need to pay the lien at closing or you will not be able to close on the house.