If you are about to buy a home, you might hear about liens. A lien can be placed on the title of a property, giving the holder rights over the home. Before you buy property, you’ll want to understand how liens could affect your home ownership.
We will examine what you need to know about liens on a property, including how to deal with them.
What is a lien on a property?
A lien on a house is a legal claim on the property. This can be used as collateral to guarantee the repayment of a debt. Liens can be placed on real property like a house or personal property like a vehicle.
If you have a mortgage or owe property taxes, a lien can be placed on your home until the debt is paid. If you get a car loan, a lien can be placed on it until the loan is paid.
If there are liens on the property, the holder of the liens could foreclose the home to reclaim the debt.
Title searches are important when buying a home to ensure no liens on the title. Otherwise, the homeownership could be disputed, and a lender will want to ensure this can’t happen before issuing a mortgage.
If your home has a lien, you must settle the debt and remove the lien before you can sell.
What happens if there’s a lien on your property?
If there is a housing lien on your home, it could give the holder the right to the property. This could mean they force the home’s sale to recover the debt. The lien holder cannot take money out of the property to pay the debt until the home is sold, and when this happens, they can take what they are owed from the proceeds.
If there is more than one lien on the property, it is usually the oldest lien that takes priority. However, no matter how recent, tax liens can take priority over others.
How does a lien work?
When you are approved for a mortgage to buy a home, a lien will be placed on the title you hold for the home. This makes you the legal owner, with a lien from your lender on the title.
If you don’t miss mortgage payments, the lien won’t be triggered and removed when the loan is repaid. This might mean you have paid all the monthly payments required, repaid the loan sooner, or paid back the loan by selling the property.
If payments aren’t made as expected, and you fall behind, the lender can begin foreclosure proceedings. The lien gives the lender the legal right to seize the property to recover losses.
Different types of liens
Voluntary liens
A voluntary lien is an agreement to use the property as collateral for a loan. A mortgage is a voluntary lien.
Involuntary liens
If you don’t pay a debt, the business you owe money to could use a lien to recover their loss. The lien can be placed on your property without your agreement. There are a few different situations where involuntary liens are used:
- Judgment liens. If you don’t pay someone you owe and they choose to sue, the court can place a lien on your property. The lien could also be placed on other personal items and property you later acquire.
- Mechanic’s liens. If you fail to pay a contractor after they have completed work on your home, they might file a mechanic’s lien.
- Tax liens. If you owe income or property tax, the local, state, or federal government can put a lien on your home.
How to remove a lien
If there is a lien on your property, the easiest way to remove it is to pay the debt owed. If you can’t do that, the holder might accept partial payment or a payment plan to remove the lien and allow you to sell the home.
You could dispute it if you don’t believe there should be a lien on your home. This will mean going to court and providing evidence that the lien shouldn’t be on the title. If you have owner’s title insurance, you can put in a claim to let them deal with the lien.
The bottom line
A lien isn’t necessarily bad as it allows you to get a loan to buy your home. And as long as you don’t miss payments, the lien will be removed when the mortgage is paid off.
Other liens can be a problem that you need to deal with. While the lien holder might not begin the foreclosure process immediately, it will make selling your home nearly impossible.
Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 35 years.
