A lien represents an unpaid debt where the debtor maintains a claim against a property. During the home buying process, certain liens on a property may interfere with the owner\u2019s ability to sell their home. A lien may also prevent a current homeowner from using their property as collateral when securing a new loan. While not all liens signal financial distress, some types of liens may raise concerns for potential homebuyers.<\/p>\n
Liens may date back to prior owners or even the home’s original builder. Typically, debtors must send the proper notification and follow state laws before filing for a lien. Those issuing the debt will attempt to collect the payment through other channels before resorting to placing a claim against a property. If the debt remains unpaid, claimants may file paperwork for the lien at the county recorder\u2019s office.<\/p>\n
Properties can receive liens for unpaid taxes, outstanding contractor\u2019s bills, or financial obligations arising from legal judgments. Often, liens appear on title insurance<\/a> searches during a real estate transaction. If the title agent finds information on a lien connected to a home you want to purchase, you should first ask the seller about the claim to unsatisfied debt. If the seller does not resolve the lien and you wish to move forward with the purchase, you may need to contact the business or individual who filed the lien and work out a settlement to remove the lien before the sale.<\/p>\n Debtors place liens on properties, not individuals. If someone who receives a lien against their property sells their home, the lien does not follow them. However, it could complicate selling the home, and they may need to resolve the debt to move forward with the process.<\/p>\n In worst-case scenarios involving significant debt, the claimants may move toward a foreclosure<\/a> on the home. The lien holder could attempt to force a sale of the property or try to take possession to place the home up for auction. The sales proceeds would fund the repayment of the debt.<\/p>\n Homeowners may consent to some collateralized loans, such as mortgages. Borrowers provide consent when signing the legal documents to obtain their mortgage. When the borrower pays off the mortgage, they satisfy the lien. A borrower who sells their home can use the funds from the sale to pay back their mortgage, removing the lien from the property.<\/p>\n Involuntary or non-consensual liens do not require authorization from property owners. These liens may relate to outstanding tax bills or unpaid bills from a contractor or builder. An involuntary lien may also result from a court judgment against a property owner.<\/p>\n Debtors cannot place a lien against a property without following a state-determined process. Usually, creditors will file legal claims before placing an involuntary lien on a property. Anyone placing a lien on a property must follow statutory requirements to ensure the claim’s validity.<\/p>\n In addition to lenders or contractors, other parties, like a homeowners\u2019 association (HOA<\/a>), may also file a lien connected to unpaid bills. Additionally, the IRS and other government organizations can place a lien on your home after tax bills remain unpaid for a certain period.<\/p>\n Generally, claimants will attempt to collect debts using other measures before filing a property lien. Typically, state laws govern the lien process. Individual states may permit some or all of the following claimants to place liens on a home:<\/p>\n The IRS or a local tax authority may place a tax lien on a property for unpaid taxes. When property taxes<\/a> go unpaid for a long period, the local tax collector may also have the authority to initiate a tax lien sale of the property and use the proceeds to pay the amounts owed.<\/p>\n Contractors may place what\u2019s known as a mechanic\u2019s lien on a property for unpaid bills related to home construction, repair, or renovation. In cases involving a dispute over the quality of craft, homeowners may need to involve an attorney to help resolve the matter and remove the lien. Those who take out a home equity line of credit (HELOC<\/a>) and do not repay the balance will also risk a lien.<\/p>\n Mortgage lenders ask that borrowers consent to a voluntary lien during the loan term. This lien holds the lender\u2019s claim on a property until the loan terminates. Borrowers will consent to these liens at the time the loan closes.<\/p>\n Judgment liens arise from court cases and remain attached to property until the matter settles. Cases do not have to relate to matters of the property for a lien to go into effect. For example, unpaid court-ordered child support may result in a lien.<\/p>\n If a homeowner falls behind on their association fees, the HOA may place a lien on the property for the outstanding amount. If the home sells, the buyer may need to pay the outstanding HOA dues to obtain a clear title.<\/p>\n Learn more:<\/b> Can Your HOA Evict You?<\/a><\/em><\/p>\n Some unpaid services, such as the sewer utility<\/a>, may result in a lien placed on the home by the municipal authority. In New York City<\/a>, unpaid water and sewer bills may result in a lien.<\/p>\n If you want to investigate the current liens or potentially lienable items on a property, you have several options:<\/p>\n Liens will often require the debtor\u2019s written release before their removal. State laws differ on handling and resolving liens, so you may wish to consult with an expert, such as a real estate attorney, before moving forward with a home purchase. Financially distressed sellers may request that a buyer take care of a lien as a condition related to a short sale<\/a> purchase.<\/p>\n Satisfying a lien may entail paying off the debt in full. In this case, you should request an official written notification stating that the debtor released the lien.<\/p>\n You may also want to contact the company or individual that placed the lien and attempt to strike an alternative resolution. If the lien resulted from the actions of a prior owner, you can request that they pay off the lien before transferring the property to your name.<\/p>\nWhat Happens to Unsatisfied Liens?<\/h3>\n
Voluntary vs. Involuntary Liens<\/h2>\n
Who Can Put a Lien on Your House?<\/h2>\n
Tax Authorities<\/h3>\n
Contractors or Builders<\/h3>\n
Mortgage Lenders<\/h3>\n
Legal Courts<\/h3>\n
HOAs<\/h3>\n
Municipal Authorities<\/h3>\n
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How Can You Find Liens on a Property?<\/h2>\n
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What Should You Do Before Buying a Property with a Lien?<\/h2>\n