Liens
One who is owed money has various methods that they can use to collect the debt. Certain types of creditors may even have the right to encumber the debtor’s real property through the use of a lien. If the property is sold, they may have first right to the proceeds of the transaction in satisfaction of the lien.
If you are a prospective buyer of the property, you have no say over whether a lienholder is entitled to repayment. They may have already perfected their interest, and the existence of the lien is something over which you have no control. The only thing that you have control over is the work you can do to discover the existence of a lien or any other cloud on the title of land before you purchase it. You can perform your own due diligence to discover a lien, along with purchasing title insurance, which can protect you when there are hidden liens on the property.
Liens on property are high stakes matters, and it is vital that you have help from an experienced real estate lawyer if you experience any issues related to them. A real estate lawyer can fight back when there is a wrongfully placed lien on your property. They may even be able to help you discover the existence of a lien. If you have any issues or concerns relating to a lien on property, it is vital that you speak with a real estate attorney in Seattle immediately.
What is a Lien?
A lien is placed on a property when there is a debt owed to another person. The lien functions as a legal claim to secure payment of money that is owed. In some cases, a lien may be voluntary. For example, when you take out a mortgage or auto loan, the car or home will be collateral that secures the loan. If you were to not make payments, the lender can foreclose on the home or repossess the car.
Other types of liens are involuntary. These liens will be placed on property when you fall into debt, and a creditor needs to find a way to be repaid. They may have tried and failed in other means of collections. As a last resort, they may try to find a way to place a lien on tangible property. Even though the creditor may not be paid now, they can have the first right to repayment when there are proceeds from the sale of property.
If there is a lien that is placed on a property, it cannot be sold until the lien is addressed and paid. The creditor who holds the lien will need to be paid from the proceeds of any sale before the lien will need to be satisfied. Any potential buyer will need to know that the lien has been satisfied because it will follow the property. The buyer will end up having to satisfy the lien in the future if they ended up owning property that was subject to a lien.
Common Types of Liens on Properties
There are a number of liens that can be placed on a property, including:
- Tax liens: The property owner may have fallen into arrears on federal, state or property taxes. The IRS, or any other tax agency, can seize any type of real or personal property that you have when there are unpaid obligations. A tax lien means that you cannot do anything with your property until the lien is paid.
- Mechanic’s liens: If a contractor, or someone else, has done work for which they have not been paid, they can place a lien on the property. The lien would be for the value of the debt which has not been paid. This type of lien can even eventually lead to foreclosure.
- Child support lien: If one owes money in back child support, they could have liens placed on their property, including bank accounts and their home. The parent who is owed child support would be the lienholder who is entitled to repayment from the proceeds of sale of the property.
- Judgment liens: The property owner may have been subject to a civil judgment. The person who holds the judgment may collect against the debtor’s property. Although there are some protections from creditors for the family home, it is not always entirely safe from liens and collection efforts.
- Homeowners Association Liens: If the property is located in an HOA, the property owner must pay dues. If they fail to pay their dues, the HOA may place a lien on the property for the amount of unpaid dues and fees.
- Mover’s liens: A mover who has assisted the homeowner in a relocation may have a lien against the property if they are not paid for their services.
If the homeowner was in a lot of debt, there may even be more than one competing lien on the property. Either way, if you are buying a property, you want to ensure that it is unencumbered because you do not want to end up having to assume responsibility for someone else’s debt that you never incurred.
If there is more than one lien, one lienholder may have priority over the others. A lien is perfected when a secured creditor has taken steps to record it and notify other creditors of the existence of the lien. If you are attempting to satisfy a lien, it is important that you know which lienholders have priority over the others.
What Is an Equitable Lien?
There is a chance that one can even become a lienholder when they are not a creditor. The law will allow this person to place a lien on the property as a matter of fairness based on something that has happened in the past. For example, a person may have had a good faith belief that they were the rightful owner of the land. With that belief, they may have invested money to make improvements to the property before they learned that they were not the owner. They will be able to have an equitable lien on the property for the value of improvements that they made. A life tenant can also have an equitable lien when they have completed work that the original testator began on the property.
How to Protect Yourself from Hidden Liens
When you take out a mortgage, you will likely be required to purchase title insurance. Even if it were not a condition of your mortgage, you should invest the money to protect yourself. There are two types of title insurance:
- Lender’s title insurance protects the mortgage company from a lien because they will retain a collateral interest in the property. You will be required to purchase this insurance as part of your mortgage because the bank will want to be protected from any unexpected surprises, especially when they may be counting on you to perform the title search.
- Owner’s title insurance protects you from the same issues. This type of title insurance is not mandatory, but you would be imprudent if you choose to go without it. You would insure the purchase price of the property to protect you from any issues with the title, including hidden liens
Even if you have purchased title insurance, you will still need to perform some level of due diligence before you purchase a property. The insurance company may not pay your claim if you did not perform any title search and simply bought insurance to cover your losses.
What Happens When You Discover a Lien
If there is a lien on your property, it means that you do not have a 100 percent ownership interest. The property will still be subject to the lien, even after you purchased it. There is no difference based on whom the original debtor was, since the lien is attached to the land. There is a cloud on the title, which can keep you from doing many things. If you wanted to sell the property, you may end up being responsible for making sure that the lien is satisfied, even if you did not owe the money in the first place. No rational buyer will pay full price for a property that is encumbered by a lien, so selling the property can be out of the question. Even if you were able to sell the property, you may end up taking a large financial loss.
In addition, you may not be able to refinance your mortgage in the event that interest rates become more advantageous. The lender will not approve any loan for the property unless there was clear title. Thus, you may be locked into the original mortgage even though you may be able to obtain better terms now.
Preventing Liens on Your Property
If you own property, your flexibility and ability to sell it when you want are at risk when there is a lien placed on it. You must remain on top of any potential obligations. If you know that you owe money, but you do not do anything to repay it, chances are that the creditor took some kind of action to secure possible repayment in the future. You should do your own research before you try to sell your property to see whether there have been any liens placed on your property. If there is any lien that you believe to be invalid, you should dispute it before you begin the process of trying to sell your property.
If it is at all possible to repay the debt, you should try to do it. The lien can be satisfied when the creditor is paid back. At that point, they will no longer hold the lien on the property. If someone wrongfully placed the lien on your property, and you were able to successfully fight it, the lien can then be withdrawn. When a lien is withdrawn, it is as if it never existed in the first place, and there will be no impact to your credit.
Why You Need a Real Estate Attorney
Liens on a property means that you should contact a real estate lawyer for a number of reasons. First, you should hire a real estate attorney to help you search for any liens before you buy a property. You can perform a public records search to discover any liens. If you are able to find these liens, you can insist that they are addressed before the deal closes. Otherwise, the lien will follow the property, and it will continue to apply when you own it. You should hire a real estate lawyer to perform a title search because they know how to effectively search public records to locate them.
Then, you will need a real estate lawyer if you purchased a property that had a lien that you did not know about when the deal closed. You may need to file a lawsuit against a number of parties, including the seller of the property, who may not have disclosed the lien before the deal when they had an obligation to do so.
In addition, you may have a claim against a title search company that you hired to review the public records. They may have been negligent in conducting their search and should have located the lien. The title search company owes the buyer a duty of care when they conduct the search, and they may not have acted unreasonably under the circumstances.
Finally, you may need help in filing a claim against a title insurance policy if you later learn that there was an undiscovered lien that you could not have found before you purchased the property. A title insurance company may deny your claim if they believe that it is not covered or that it falls under an exclusion to your policy. You may be offered less than the full amount necessary to cover your losses, and you may need to file a lawsuit against the title insurance company.
Hire a Real Estate Attorney For Property Liens
Don’t leave your property and assets to chance. Contact a Real Estate Attorney for invaluable support with real estate liens. Don’t delay, call today.
