What is a Property Lien?

When trying to sell your property, the question of liens may arise. Having one on your property means the transaction can’t go through until the lien has been dealt with. They’re a standard part of real estate transactions, and if you want to avoid unexpected delays in a sale, they need to be clearly understood. Here’s the lowdown on property liens, what they are, how to find out if a property has one, and how to get it removed.

What is a Lien?

A lien is a legal claim or right against a property for unpaid debts. Its purpose is to act as security for someone who can repossess the property or take other legal actions to satisfy the debt. For instance, the government may impose a lien on your property if you haven’t paid your real estate taxes. Private contractors can also place liens if they haven’t been paid for their work on the property.

For example, imagine that you’ve bought a property through a mortgage. However, the lender requires a better guarantee than your signature, so they have the mortgage documents filed at the local government office. The lender has now become the lienholder (a person or organization that holds the lien). Secures debt and gives the lender a better chance of being repaid for the loan. If the loan is not repaid, the lender may have the right to claim and resell the property. Liens are also a signal to other creditors. If you apply for another loan, they will see that they won’t be the first in line to be paid. Typically makes it almost impossible to sell or refinance until you have paid off your outstanding debts.

How is the Lien Found?

Before a property can be sold, it must go through due diligence. As part of this process, a title company will be brought in to search public records for any liens against the property.

There are several types of liens:

• Home Loans – When you take out a home loan to finance a purchase, the home will serve as collateral. For instance, you made monthly payments, ensured the property, or lived there as your primary residence for several years. As part of the loan agreement, the home can be repossessed if you fail to keep up your end of the bargain.
• Construction Liens – Contractors can also file liens if they haven’t received payment for the work they completed. It also applies to sub-contractors who haven’t paid them, even if the homeowner is not at fault.
• Judgment Liens – If you lose a lawsuit and can’t pay it back immediately, the creditor (the person who won the lawsuit) may file a lien against your property.
• Tax Liens – If you fail to pay current taxes to local governments or the IRS, they can place a lien against your property. This is terrible news, as tax liens can be attached to current and future assets. The IRS can even jump the queue and collect it before other creditors.

Most sellers are aware of liens against their property but can be caught unaware. You may have received a new lien for which you haven’t been notified yet, or the lien could be so old that you’ve just forgotten about it.

How Long Does it Take to Remove a Lien from Property?

Once settled, you’ll receive a “release of lien” from the entity initially filed it. If a lien is found, you’ll be informed by the title company how much it is and who you need to pay. You won’t sell the property until the debt is paid or the lien is released. You have several options for how you deal with it.

• Pay it off – If the lien is legitimate, then merely pay it off to get it removed. This is a pretty straightforward process.
• Settle – It’s possible to negotiate with the creditor if you can’t fully pay off the debt. Some creditors are willing to accept less if they can get something and put the loan behind them.
• Get it corrected – if you have good reason to believe the lien is not legitimate, contact the lienholder to fix it. It’s possible that the lien release got misplaced or lost in an earlier transaction.
• Dispute it – Things can get very complicated if you have to start legal action to get a lien release. Make sure you have reasonable grounds for a dispute before beginning this process. For instance, the lien from the previous owner may have gone undetected during your title search on the property. A Dispute, though, can be very long and costly. Most attorneys advise paying the lien as the best way to move the sale forward.