Is Having a Lien on Your Home Bad?

Is Having a Lien on Your Home Bad?

A lien on a home serves as public notice that a legal claim has been made against it for debts owing to creditors. Although it may sound unsettling, a lien isn’t always a terrible thing. This is so because there are various kinds of real estate liens. If you have a mortgage, for instance, that is a type of lien on your house. On the other hand, certain liens are bad and need to be paid off right away.

In this article, we’ll discuss five different forms of property liens, outlining each one’s characteristics, potential effects, and removal procedures.

Main points

  • You have a property lien if you have a mortgage.
  • Liens may be willingly or unwillingly taken.
  • A lien may be placed against your property for unpaid taxes.
  • You could be unable to sell your home because of a lien.
  • Your home may be foreclosed upon as a result of a lien.

A Property Lien: What Is It?

A property lien is a legitimate claim that a creditor has against a piece of real estate. According to Kevin Callender, branch manager and loan originator at Motto Mortgage Direct in Milford, Michigan, liens are occasionally an expected aspect of owning a mortgage.

In other cases, a lien on your property is something you should be concerned about because it can dictate how much control you have over your house. According to Callender, a lien restricts what a homeowner can do with their property since it gives a creditor the legal right to compensation for the debt that is owed to them.

The size of the lien is inconsequential, which is something that homeowners might not be aware of.

John W. Mallett, who is referred to as America’s Homeownership Coach and is the author of Buy Your First Home Today, explained to The Balance via email that the lender has the right to enforce the terms of the loan and foreclose on the property if I, the debtor, fail to make the payments on the debt obligations.

“The lender has the power to foreclose and seize the entire property without recompense to you, even if you owe as little as $1,000,” said Mallett, who is headquartered in Westlake Village, California.

Different Liens

Liens come in a variety of forms, some of which are voluntary, while others are non consensual or involuntary.

Home Equity Lien

In the event that the borrower defaults on the mortgage, a lender may have an interest in real property called a first-mortgage voluntary lien, according to Callender. If the borrower defaults, this may provide them with the chance to sell the property for the amount owed.

Because a second loan you obtain—for instance, to repair your home—becomes the second voluntary lien on the property, it is known as the first-mortgage voluntary lien.

Decision Lien

According to Callender, this kind of lien is an unintentional lien from a litigation that might be listed as a judgment against your property. You may suffer from a judgment lien in a number of ways.

You cannot sell the house or transfer ownership of the property if a judgment lien is present until the lien is satisfied.

According to Mallett, the court will grant a judgment in favor of the lender or creditor if you lose the litigation and you owe money to the creditor. He warned that it might be connected to your personal belongings, future assets, and income, in addition to real estate.

Real Estate Tax Lien

Another involuntary debt kind is a property tax lien, which Callender considers to be one of the harsher types. He stated that this “may acquire a first-lien position over a mortgage.” “( If the property taxes are not paid, “the state has the right to encumber the property and sell it.” In other words, you could have to sell your house to cover your taxes.

Even if the house is not foreclosed upon, there are still other reasons to be concerned about a property tax lien. According to Mallett, who is also the president of Mainstreet Mortgage, “a tax lien recorded with the county makes it almost impossible to refinance or to get authorized for any financing on your house.”

Lenders are wary of property tax liens, and they closely watch owners to make sure they are paying their property taxes. “If the lender learns you owe back taxes, they will frequently pay the taxes and establish an escrow or impound account that will require you to pay your taxes with your mortgage payment,” said Mallett.

An Engineer’s Lien

Don’t be misled by the title: although there is a mechanic’s lien for that as well, a mechanic’s lien on your home is not the result of not paying for vehicle maintenance. According to Callender, if a debt is not paid, work or renovations on a residence may result in an unintentional mechanic’s lien. 

Additionally, a mechanic’s lien may take precedence over a mortgage.

Mallett advises putting the project’s scope in writing and communicating often during the refurbishment to prevent a mechanic’s lien. In particular, if goods have been bought or extra labor has been hired, he added, “These liens frequently develop when there is a miscommunication between you and the contractor.”

But maintaining control of the renovation process is in your best interests. The removal of these liens, which frequently requires a court order, is complex and expensive but can be done by practically any contractor or subcontractor.

HOA or Condo Lien?

If you choose to live in a condominium or a development with a homeowners association, you also choose to commit to paying maintenance fees on a monthly or annual basis. Furthermore, failure to pay your dues may result in an unauthorized lien, which ordinarily comes second to the mortgage lien. 

Another thing to consider is that you can be impacted by other members’ unpaid HOA dues. According to Mallett, the lender may still reject your application even if you are up to date on your HOA dues and wish to refinance your house with the lowest rates and terms available. “While your loan may be granted, the condo project you’re a part of may not be,” he said. “The lender may base this decision on other members with unpaid HOA dues.”

Removal of a Property Lien

So, how may a lien be released? Depending on the circumstances, Callender claimed that the majority of liens can be discharged by merely paying the debt to clear the title to the property and submitting a release of lien application. He said that in some other situations, a lienholder might consent to a release provided a payment plan is established.

Additionally, you can go to the relevant court and request to have the lien lifted if you believe the creditor is mistaken or the lien was obtained fraudulently.

If the debt triggering the lien is valid, you might be able to negotiate a lower settlement payment with the help of an attorney.

He suggested filling out a release-of-lien form and getting the lienholder to sign it in order to prevent any confusion once you’ve paid (with a notary present). The release form should then be submitted to the county recorder’s office to become a public record.

The conclusion

There are two types of liens: voluntary and involuntary. A voluntary lien is nothing to be concerned about. An involuntary one, on the other hand, may result in you losing control of the house if it is not addressed and severely restricting what you may do with it.

Questions and Answers (FAQs)

What occurs if you purchase a home that has a lien on it?

In general, you can’t buy a house with liens on it because owners typically can’t sell it and the majority of mortgage lenders won’t authorize a loan for this kind of house. In the event that a buyer obtains a foreclosed property, they are liable for paying the lien.

How do you tell if your home is the subject of a lien?

You may find out more about property records by contacting your local secretary of state or county clerk. Usually, you can look up this information online.

How long does a lien last on your home?

A lien is automatically added when you buy a house with a mortgage; it exists for the duration of the loan. What if you cleared the lien on your house, but the original lender is no longer in operation? You should get in touch with the new bank if the previous one was purchased after the bank failed in recent years. In this situation, the FDIC might also be able to assist you in obtaining a lien discharge.

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