What Is A Lien On A House And How Does It Affect You?

If you’ve ever bought or sold a home, a title company likely performed a search to see if there were any liens on the property. Contractors, banks and lenders often use liens to collect unpaid debt.

Having a lien on your house may sound ominous, but not all liens are problematic. The ones that are, however, can prevent you from selling your property, so you need to settle them.

Let’s look at how liens work, the different types of liens and how they can affect real estate transactions.

What Is A Lien On A House?

A lien is a legal claim against real or personal property that gives the lienholder the right to satisfy a debt. When a lien is placed on an asset, the asset becomes collateral for the loan. A lienholder can repossess the asset if the borrower defaults on the loan. A lien on a property helps guarantee the loan will be repaid.

Liens also prevent a borrower from selling a property without a lienholder’s consent. If you sell a property without a lienholder’s consent, the proceeds of the sale must first be used to pay off the debt. In some states, lienholders can force the sale of a property to recover any underlying debt.

Liens are a matter of public record, so lenders will see any liens attached to a property if you try to take out a new loan or line of credit. This information can affect their willingness to extend credit to you.

Creditors can place a variety of liens on your property. Liens can be voluntary or involuntary, meaning they can be placed on your property with your consent (voluntary) or without your consent (involuntary).

How Does A Lien On A House Work?

Most liens are voluntary. That means the borrower agrees to the lien ahead of time. For instance, if there’s a mortgage on a property, that means a homeowner has agreed to a mortgage lender’s lien. If the homeowner stops making mortgage payments, the lender can legally repossess and sell the property to satisfy the debt.

But other liens are involuntary and the result of a financial or legal dispute. For instance, your state or the federal government can take out a lien on your property if you have unpaid taxes.

Types Of Liens On Property

Several types of liens can exist against a property. Here are the most common types of liens that can be placed on a home:

Mortgage Lien

A mortgage lien is a voluntary lien placed on the property when you purchase a home with a mortgage or refinance your mortgage. The house serves as collateral for the loan. If the homeowner stops making mortgage payments, the lender can foreclose on the property.

A mortgage lien also means you can’t sell the property until the mortgage balance is paid off, or you agree to use the sale proceeds to pay off the mortgage balance first.

Tax Lien

Tax liens are involuntary liens placed on a property by your state or the IRS if you fail to pay property taxes or federal income taxes. Federal tax liens are prioritized over most other types of liens.

Mechanic’s Lien

A mechanic’s lien is an involuntary lien placed on a property by a contractor for unpaid work performed on a property. The lien serves as collateral for the unpaid work. The outstanding costs can include the labor or the materials used to complete the project.

If a contractor wants to take legal action against you for unpaid work, they have a certain time frame to file a lawsuit. On average, contractors typically have up to 6 months to file a lawsuit, but the time frame can vary by state.

If the contractor wins the lawsuit, they can place a lien on your property. The lien will prevent you from selling your home until it’s paid off. And when you sell your home, you must use the proceeds from the sale to pay off the mechanic’s lien before you get any money.

Judgment Lien

Judgment liens help protect creditors that offer unsecured loans, which are loans that aren't backed by collateral. A good example of this would be unpaid credit card debt.

If you have unpaid unsecured debt, a creditor can file a lawsuit to obtain a lien. If the creditor is awarded a judgment lien, worst-case scenario, they can force you to sell your property to pay off the debt.

Assessment Lien

Depending on its bylaws, a homeowners association (HOA) can place an assessment lien on your property if you don’t pay your HOA dues. The HOA can then sell your home if you don’t settle your outstanding balance. You won’t be able to refinance or sell the home until you remove the assessment lien.

How To Remove A Lien On Your House

Voluntary liens aren’t usually an issue, but involuntary liens can quickly turn into a problem, especially if you’re trying to sell your house.

Here are a few steps to take to get rid of a lien on your property:

• Pay off the debt: Paying off the debt will remove the lien because there is no longer a debt to satisfy.
• Negotiate the debt: Some creditors are as eager to settle the debt as you are and may accept a lower payment to close an account.
• Contact the lienholder: Contact the lienholder if you paid the debt and the lien is still there. Be prepared to provide documentation that proves the debt was settled.
• Take legal action: If you believe the lien was obtained illegally or the claim is invalid or expired, you can take the lienholder to court to try to have the lien removed.

House Lien FAQs

Still curious about liens? Let’s review some frequently asked questions about liens on homes.

Can I sell my house with a lien on it?

A lien can prevent or delay the sale of your property. In fact, liens are one of the most common reasons for closing delays.

When you sell your home, a title company will perform a title search to ensure you’re legally cleared to sell the property. The title search proves who legally owns the home and researches a property’s history to look for liens or other claims.

Buyers, sellers and lenders will see what liens are on a property when they receive a Closing Disclosure 3 days before closing. Until the lien is settled and the title is cleared, the sale can’t proceed.

How do you know if there’s a lien on your house?

There are several ways to learn if there’s a lien on your property. Liens are public records, so you can visit your county website to search your home by address. Searching should be free, but you may pay a fee if you need any copies.

You can also hire and pay a professional title company to perform a title search.

Is a lien the same as a mortgage loan?

A mortgage loan is a type of lien. When you have a home loan, your lender becomes the lienholder. As the lienholder, your lender can repossess the property if you don’t repay the loan.

Does a lien affect your credit?

A mortgage lien, which is a voluntary lien, won’t hurt your credit score if you regularly make your payments on time and in full. If you start to miss payments or default on your loan, your mortgage lender can foreclose on the home, which would damage your credit score.

The Bottom Line

Lenders will often place a lien on personal and real property as collateral for any money borrowed. As long as you can make your monthly mortgage payments, you won’t have to worry about the lien on your home.

Are you ready to become a homeowner? Apply for a mortgage today and see what you qualify for.