What’s a lien?

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A lien is a legal claim or “lien” on some type of property, either personal or real, that makes it security against money or services owed to another person or entity. Liens generally exist in situations such as second mortgages, car title loans, or money borrowed against any other substantial item owned by borrowers. This claim could prevent a borrower from selling property, or at least prevent them from transferring title to the property until the debt or obligation is satisfied. In some cases, a person or entity to whom money or services are owed may use legal means to place a lien on the debtor’s property or a portion of it.

Procedure

Sometimes the lender can force the property to sell to collect what is owed if the loan is delinquent. If the borrower decides to sell the property, the creditor must be paid before the title is authorized to transfer to the buyer. In some cases, the creditor is allowed to take possession of the property until the debt or obligation is satisfied, but may not sell it.

Placement and removal of liens

Debtors may agree to liens, or they may be imposed on debtors through legal means. To place a lien on property, the person or entity to whom money or services are owed generally must stop by the appropriate government office and pay a fee. The debtor can usually remove the lien by satisfying the original debt, paying the fee that was charged when the lien was placed, and paying an additional fee to have it removed.

Types of liens

There are different types of liens, and some of the most common are mechanical liens, also known as construction liens. These liens are put in place when homeowners owe money for materials or labor that improved their property in some way. This could include repairs, maintenance, and new construction, as well as things like landscaping and renovation.

Other common types of liens include maritime liens on ships and other vessels; farm liens on farm equipment; and tax liens imposed by governments due to unpaid taxes. Landlords, warehouse or hotel owners can also place liens on unpaid rent or fees. Hospitals, health care providers, insurers, and other service providers may also impose liens to collect unpaid fees.

Buyer beware

When purchasing real estate, it is important for a buyer to ensure that there are no liens that could prevent them from obtaining clear title to a property. This is accomplished by conducting, or contracting a company to conduct, a title search or “title summary.” This simply means developing and examining a collection of publicly recorded documents regarding the property’s history.

search title

A title search will usually indicate whether a lien exists and whether the seller is the legally recognized owner of the property. You must also state the exact legal description of the property and provide details of a lien or other liens against the title. This is especially important if creative financing techniques are used to purchase the property, such as owner financing or a land contract. Otherwise, after the agreed price has been paid, the buyer could discover that he or she still does not own the property free and clear.

Smart Asset.

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