Homeownership And The Legal Aspects Of Property Liens And Encumbrances – A lien represents a financial claim placed on an asset to secure payment – the satisfaction of the owner’s obligation. Lien is a broader term and refers to any type of claim on property. Any lien is a lien, but not all liens are liens.
A lien is a legal right acquired by the owner of the property, by law or otherwise, by the debtor. A lien serves to secure an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may seize the property subject to the lien.
Homeownership And The Legal Aspects Of Property Liens And Encumbrances
Liens always represent a financial interest. Liens are often the result of secured loans, such as auto loans and mortgages. It gives the creditor the right to seize and sell the property on which it has a lien to satisfy the outstanding debt. A common example: If a person defaults on a car loan, the finance company can repossess and sell the car to get payment. Another common type of lien is a lien issued as a result of a lawsuit filed by a creditor. By winning the case, the creditor can place a lien on the debtor’s property to facilitate payment of the debt. Liens may also include the right to seize funds in the borrower’s bank account.
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Charges imposed by tax agencies are specifically called tax liens. A federal tax lien is different because, in most cases, it takes priority over any other claims of creditors.
A lien is a claim on property by a party other than the owner. A lien can affect the transferability of property and restrict its free use.
An easement is a real estate concept that defines a situation in which one party uses the property of another, where the property owner is paid a fee in exchange for the right to the easement. Utility companies often purchase easements for the right to erect telephone poles or run pipelines over or under private property.
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However, while a fee is paid to the owner, the easement can negatively affect the value of the property. For example, unsightly power lines can greatly reduce visual appeal.
Liens and liens are most commonly associated with real estate, but any of them may apply to personal property as well. If a person fails to repay a loan, a creditor or tax agency can place a lien or lien on the person’s assets. Such a claim on the property creates unclear title and may limit the ability to sell or transfer the property.
The property owner must disclose any existing liens to potential buyers. The buyer will inherit the lien while purchasing the property. If the seller fails to disclose existing liens, failure to do so is subject to legal action by the buyer.
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Authors must use primary sources to support their work. These include white papers, government data, original reports and interviews with industry experts. We also refer to original research from other reputable publishers where appropriate. You can learn more about the standards we follow to create accurate and unbiased content in our editorial policy. Have you moved into a house and then found out that your new home isn’t entirely yours? A lien is a legal claim that a creditor (such as a bank) places on an asset as collateral. A lien exists to guarantee payment of a debt; If the borrower fails to make payments, the lender can seize or force the sale of the property to satisfy the debt.
Certain liens are a normal and expected part of owning a home. Other liens can cause potential problems in the purchase or sale of property. If you already own a home or are considering buying a home, make sure you understand how a lien affects the property and how to remove it.
Lenders or borrowers place a lien on property to protect their financial interests. In most cases, this means that the lien is lifted when the loan is made. A lien affects what a homeowner can do with their home, because creditors have a legal interest in the property. That is, if someone tries to sell their home before the lien is lifted, they will not have free and clear title or all right to sell the property.
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Before closing on a home, the title company conducts a title search to find any title issues that could affect the seller’s legal right to sell the property. According to the American Land Title Association, about 25 percent of these searches reveal issues such as liens that cloud title and must be resolved before closing.
Removing a lien often comes down to paying off the debt and possibly filing documents with the county recorder’s office. In some cases, a lien may remain on the property in error. If a title search reveals an issue such as a lien, the seller and buyer should determine who will resolve it before the sale goes through.
There are different types of liens that can have different effects on your property and your overall financial health.
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Broadly speaking, liens fall into two categories: voluntary and involuntary liens. Sometimes you accept liens by choice. Your mortgage is a good example of a voluntary lien. You choose a lien as part of your overall financing agreement with a bank or other financial institution to purchase a home.
However, in other cases, a creditor can place a lien on your home without your approval. If you owe money to a creditor or government agency, they may file a lien with a state or county agency to collect the balance you owe them. Below are some common types of liens.
If you don’t pay income tax, business tax, or property tax, expect a government agency to take action. Usually, you’ll be notified in writing first, but if you don’t take enough steps to pay off the debt, the government can place a lien on your property or assets.
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If the creditor takes you to court and wins, part of the judgment may allow the creditor to place a lien to secure the balance you owe. If you can’t find a satisfactory way to pay off your debt, the creditor may have the right to seize or force sell your property.
A contractor holds a mechanic’s lien, also known as a construction lien, to secure payments for renovations or other construction work. State laws determine when a mechanic’s lien expires and no longer applies, but an expired lien can also cause problems down the road. If the contractor forgets to formally remove the lien, it may still show up in a title search and complicate a sale even if there is no outstanding lien.
The main difference that separates “good” liens from “bad” liens is whether or not the lien is settled. When a lender places a lien on your property as part of a financing agreement with you, that agreed or voluntary lien should not negatively affect you. This protects creditors, but as long as you keep up regular payments, you probably won’t need to think about it.
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An involuntary lien, in which a creditor places a lien as part of an increasing effort to claim a debt owed to you, is a very different matter. In this case, the creditor is taking action because you are behind on payments. A lien is a sign that a creditor is on the verge of seizing your property (although, in most cases, you still have time to contact and work out a payment plan before the creditor comes after your home).
The three major credit reporting agencies, Experian, Equifax and TransUnion, do not include taxes, judgments or mechanics liens on your credit report. A lien may not directly affect your credit score, but a past history of nonpayment with a creditor can hurt your score. A lien can negatively affect your creditworthiness in the eyes of a lender. Liens are a matter of public record, so a lender may find them in a background check and deny you a loan.
It’s important to note that liens cloud your title and make it difficult to sell or refinance your home. Municipal governments sometimes sell tax liens through auctions as a way to recover money. If an investor has purchased a tax lien on your home, they can take steps to evict you and foreclose on the property.
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The easiest way to remove a lien is to pay the balance owed to the debtor. Most lenders prefer to work out a payment plan instead of going through the long and expensive process of foreclosing on your home. In some cases,
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