Any property against which a debt is owed may have a lien placed against it. The party that has a legal claim to the debt is the lien holder.
Most adults in the U.S. have purchased property, such as a home or car, by borrowing money from a lender. Then they pay back the lender in small increments over time, often with interest. Lenders tend to hold the property being purchased with the money lent as collateral. It gives them the right to repossess the property to pay off the debt if the original borrower defaults.
These paragraphs explain, in broad strokes, a lienholder and their rights. Let's look at things in more detail.
Definition of Lien and Lien Holder
A lien is a legal claim against a property. It gives a person, company, or entity a legal interest in another’s property, typically tied to an obligation such as a loan payment.
A lien can equal or exceed the market value of the property. If the value of your property falls, you are "upside-down" on your loan. Even though the property is worth less, you are responsible for paying the original amount.
Since real estate tends to increase in value, purchasing a home is a relatively safe deal. However, in some economies, it doesn’t hold true.
A lienholder is a party with a legal interest in the property. The lienholder has certain rights with respect to the property, including the ability to sell it if the loan payments are skipped, or the debt remains unpaid past the contracted date.
A senior lienholder has rights to first payment from the proceeds of a property sale. A junior lienholder is eligible for repayment only after the senior lien holder's debt has been paid off. Lienholders are paid in order of seniority until the proceeds are entirely distributed. Any lien holder that has not received payment by that time is out of luck.
Types of Liens
Mortgages
The most common type of lien is a mortgage on real estate. The borrower obtains the loan, while the lender as lien holder retains a lien on the property purchased with the loan until the debt is paid and the lien is released.
The lienholder has certain rights in the event of a property sale if the borrower defaults on the mortgage payments.
Tax Liens
A tax lien gives the government a legal interest in a taxpayer’s property to secure payment of unpaid taxes. If the property is sold, the tax debt must be paid from the proceeds before the seller receives any revenue from the sale.
A large enough tax lien could demand all proceeds from the sale, leaving the seller with nothing. A tax lien can also prevent a borrower from selling or refinancing a mortgage or transferring title freely to another party.
Construction and Mechanic’s Liens
Contractors, laborers, and mechanics paid by a property owner to make improvements on the property can place a lien against it if payment isn't made. They are then lien holders until paid in full.
These types of liens are subject to deadlines and restrictions set by the state. They must be filed according to a written agreement between the property owner and the lien holder. Third parties cannot place a lien on a property for another's benefit.
An owner can seek a waiver of lien from a contractor before work begins. Construction or mechanic’s liens cannot be claimed by a property owner in bankruptcy.
Lien Judgments
Lien judgments are available for lien holders without a financial interest in a property. To enforce the lien, the party asks a civil court to intervene with a final judgment.
Final judgment places a lien on the property, which must be satisfied before the title is transferred. In some states, a judgment can be enforced on a property in another location. Also, lien judgments expire after a period set by state law.
Lien judgments may be enforced through property seizure, forced sale of a home, or wage garnishment.
Finding a Lien Holder
Liens are recorded with a property’s title. A title includes details about previous sales, title transfers, mortgages, refinanced loans, mortgage releases, as well as liens. You can obtain the information yourself or hire someone to do it for you.
If you don’t want to perform the search, hire a title company, an attorney, or an escrow company to prepare a title report. Title reports contain:
- The names of titleholders
- How the title is held
- The tax rate on the property
- Any property taxes due
- A list of encumbrances such as mortgages, deeds or trusts, recorded judgments, and liens
You can save yourself the expense by accessing these documents yourself. All are public records you can see by going to the county courthouse, or, better yet, by searching an online database, like CourthouseDirect.com.
Most public records have been placed online in a searchable format. For older titles, a document may be digitized (scanned and saved as a computer file). Handwritten records are not easily searchable, but you can still read the content online.
____
Almost every adult borrows money for a large purchase, such as a home, land, or an automobile. Once you sign the contract to borrow the money, the property you are purchasing has a lien placed against it. The entity you borrowed the money from becomes the lien holder.
A lienholder maintains ownership of the lien until the debt has been paid in full, then the lien is released. Obtaining a lien release is a crucial step in clearing a property title. Just because you made a final payment doesn’t mean the lien has been released. Be sure to get a copy of the release to prove full payment and clear the title for later transfer.
Keep these details in mind as you apply for loans of any kind. Remember that others with little to no interest in your property can go to court and place a lien to enforce a separate debt. Even someone who performed work on your property can become a lienholder if you don't pay them for it.
If you need to find out if your real estate has a lien against it and who the lienholder is, go online with CourthouseDirect.com. Look through our extensive databases of titles, deeds, and other public records.
