If you have a mortgage, then you must have a lien on your house. This is a claim. If you default on payment, the bank that provided you with the loan has a legal right to your property. But having this kind of lien is not necessarily a bad thing. This is because it is an important part of the home buying process-many homeowners have it.
Nevertheless, not all housing liens are the same. In fact, some can damage your credit score and affect your financial future. So which liens are not good for you? Here are some important facts about liens, including various types of liens, how they affect your credit score, and how to remove them.
- A lien is a legal claim by creditors against property, allowing them to recover their debts.
- The lien can be general or specific, or voluntary or involuntary.
- If the homeowner fails to fulfill his obligations, the lien holder can legally seize and dispose of the property.
- Tax liens no longer need to be reported, but other involuntary liens may affect your credit score.
- The homeowner can cancel the lien by making payment arrangements or paying off debts.
What is a lien?
The lien is the legal right or claim of the creditor against the property. Liens usually target property, such as houses and cars, so that creditors such as banks and credit unions can recover the money owed to them. The lien can also be cancelled, giving the owner complete and clear ownership of the property.
The lien restricts what the owner can do with the asset, because the creditor obtains shares in the property to compensate for what is owed to them. If the homeowner tries to sell the property before the lien is lifted, complications may occur—especially if the lien is involuntary.
The lien gives the creditor certain legal rights, especially when the debtor has not paid or refused to perform its financial obligations. In these cases, the creditor can choose to dispose of the property through sale.
Types of housing liens
There are several different types of liens, such as specific or general liens. A specific lien is attached to a specific asset. For example, the car dealer where you bought your car may have a lien on your car and nothing else. House lien is the legal requirement of creditors for tangible property (house). But in the case of a general lien, the creditor can file a claim against any and all of your assets, such as your house, car, furniture, and bank account.
Lien can also be voluntary or involuntary (also known as consensual or non-consensual). When the borrower prepays the mortgage, the bank will remove the lien and make it a voluntary lien. For involuntary liens, if the borrower defaults on loans or other financial obligations, the creditor can seek legal recourse by submitting a lien to the county or state agency. Liens can be set by contractors, government agencies, or other types of creditors.
This type of lien is imposed on your property by government agencies to pay any unpaid income tax, business tax, or property tax.
For example, if you have not paid federal taxes, the Internal Revenue Service (IRS) may place a lien on your property. First, the agency informs you of your obligations in writing. If you do not respond, or if you fail to make appropriate arrangements to pay off the debt, the IRS may place a lien on your house or other assets. The only way to release this lien is to pay the outstanding debt.
General judgment lien
This type of lien is granted to the creditor after the court makes a ruling in favor of the creditor. When the debtor fails to perform its financial obligations, the creditor can decide to sue the debtor in court and demand that it pay any outstanding balance.
If the court rules the creditors in favor, they must record the lien through the county or an appropriate recording agency. If the debtor fails to reach an agreement to pay off the debt, this entitles the declarant to possess a piece of property (whether real or personal). Property may include businesses, personal property, real estate, vehicles, or any other types of assets that satisfy a court decision.
When the owner fails or refuses to pay for completed work or supplies, construction companies, builders, and contractors can apply for mechanical liens, also known as property or construction liens.
This legal document allows the entity to obtain compensation in the event of payment problems due to breach of contract. Most contractors and other businesses send payment requests and notices of intent to the debtor before submitting such liens.
If the debtor still refuses to settle, they can proceed. This requires submitting documents to the county or appropriate local agency detailing the property, the type of work done, and the amount owed. If the debtor still refuses to settle, the lien holder can choose to enforce the lien.
Will a lien hurt the homeowner?
Yes and no. Let’s solve “no” First. The lien on the house is automatic and may not be related to your repayment history. Everyone with a mortgage has such a voluntary lien on their house, so it won’t hurt you-as long as you keep up with your term mortgage. Once you pay off your house, the lien will be cancelled and you will have no burden.
Now let’s take a look at “Yes. “ Any other type of lien is usually detrimental to the homeowner. A lien means that a certain form of debt is still outstanding, leading to legal action. Although the lien does not mean that the ownership of the property has been transferred, it may be a step in this direction if the creditor decides to proceed.
This can lead to the worst. A potential result is the seizure and sale of property, especially if the cause is non-payment of property taxes. This is not as common as you think. Most lien holders avoid foreclosures and instead wait for the homeowner to pay off the debt or sell the property.
On the other hand, liens are beneficial to workers such as creditors or contractors. This is because the lien protects their rights and ensures that they receive due compensation for the work they have done for the homeowner.
A word about credit score
There may be some confusion about how liens affect your credit score and which ones actually appear in your records. Some mechanics’ liens and judgment liens are reportable, which means they will usually appear on your credit report. That’s because they affect your repayment history, which accounts for more than one-third of your credit score.
To report them, the creditor must obtain a minimum amount of identifying information from the debtor, including their date of birth or Social Security Number (SSN). Even if it has been paid off, the lien may still appear on your credit report—usually as long as seven years.
However, not all liens will affect your credit score. For example, your mutually agreed lien on a house or car that is still being paid off will not appear in your report.
The same applies to tax liens. As of April 2018, the three major credit reporting agencies—Equifax, Experian, and TransUnion—removed tax liens from their credit reports. These agencies stopped reporting them due to the large number of errors, inconsistencies and disputes received.
To see if there is a lien against you, request a free credit report from Experian, Equifax or TransUnion on AnnualCreditReport.com. The Fair Credit Reporting Act requires these credit reporting companies to provide you with a free copy of your credit report every 12 months at your request.
What happens if you don’t pay the property lien?
The purpose of the lien is to protect the creditor and ensure that the debtor fulfills its financial obligations. If reasonable steps are taken to fulfill obligations, or alternative payment plans are arranged and followed, the debtor should not be subject to property liens.
But if this does not happen, things may change. After all attempts to pay off the debt have been exhausted, the creditor may decide to place a lien on the property. This means that the creditor has tried to contact the debtor to collect the debt, but has not made any progress in resolving the debt.
Property tax lien
When the landowner or homeowner fails to pay the property tax, the city government has the right to lien on the property. This means that the owner cannot refinance or sell the property without repaying the debt to cancel the lien.
When the lien is placed on the property, the government will issue a tax lien certificate. The file includes details of the property, the amount owed, and any additional expenses such as interest and/or fines. The city government can sell these certificates through auctions to investors who pay an additional premium plus the outstanding amount. This allows the government to recover the money.
If the owner chooses to pay off the debt and want to cancel the lien, then they must pay the investor the outstanding debt, as well as any additional interest and insurance premiums paid by the investor. Once the debt is paid off, the lien is cancelled. If the debtor does not repay the debt, the holder of the lien (in this case, the investor) can enforce the lien to recover its investment.
How to delete a lien
There are many ways to remove a lien from a house. The first is to resolve the matter with the lien holder. The settlement process depends on the type of lien, the relationship between the debtor and the lien holder, and the value of the lien. In some cases, if both parties agree to a payment plan, the lien holder may agree to cancel the lien.
Remember, the lien is related to the property, not the owner of the property. For this reason, property holders can be exempt from property liens when they sell assets related to liens.
This course of action has disadvantages. Although the homeowners get a profit from the sale, they are expected to first repay the amount owed to the lien holder. Homeowners may find it difficult to sell any property that has a lien on them. Potential buyers may avoid properties that others have the right to demand.
The most straightforward way to remove a lien from your property is to pay off the debt. After paying off, you can submit a lien release form as evidence that the debt has been paid off.
How do you get a lien from your house?
The easiest way to remove a lien is to pay the outstanding debt in full or by agreeing to a payment plan.
How does a property lien work?
A property lien is a legal claim for property granted to the creditor by the court when the debtor fails to repay the debt. The lien is filed with the county office and sent to the owners to notify them to recover the assets.
What kind of lien can be placed on the house?
The lien can be general or specific, or voluntary or involuntary. Specific types of liens include tax liens, judgment liens and mechanical liens.
Can you hold a lien on your house from the previous owner?
Usually not. Generally speaking, people will not buy houses with liens-most sellers will clear all liens before listing to avoid delays and other problems. Even if buyers are willing to take over the lien, they may not find a lender to fund the purchase.
Nevertheless, in some cases, the lien will be transferred to the buyer, such as when buying a house through foreclosure or auction, the attached lien becomes the buyer’s responsibility.
Before you close the house, your attorney or title company should conduct a title search to ensure that the title is free of liens, tax arrears, and other claims. Don’t skip the title search, as this is the best way to ensure that no one else owns the property.
How do you conduct a property lien search?
Lien is a matter of public records. In most states, you can search for free by address through the website of the county recorder, clerk, or assessor. Or, you can show up directly at the county office, or you can hire a property company for a fee to search for you.
All homeowners have liens on their houses until they pay off their mortgages. Although these liens will not harm you because they are voluntary, other liens may harm your financial situation and credit rating.
If you fail to fulfill your financial obligations, Uncle Sam and other creditors can cancel tax liens, judgment liens, or mechanical liens, allowing you to pay off the debt. If you still do not repay, they can enforce a lien, foreclosure or seizure of assets and pay off your debts.