When it’s involuntary, the term “lien” is not a good thing in real estate. A lien is the right of one party to take and keep possession of a property that belongs to someone else until the owner repays a debt. A property lien is a legal notice attached to your property. It becomes part of public record. Creditors know that placing a lien on a property is an efficient way to collect on debts. In these cases, they use involuntary liens. The more you know about involuntary liens, the better you can protect yourself from this adverse action.
Involuntary vs. Voluntary Lien
Liens aren’t always negative. A property owner can choose to sign up for a voluntary lien, such as a mortgage loan agreement, to pay for the property in installments. Homeowners consent and agree to voluntarily liens, signing up for them with collateral. Involuntarily liens, on the other hand, come about because of the property owner’s detrimental action or lack of action. A third party can place a lien on the property as a threat to the owner – pay the debts or you will lose legal ownership of your property.
Who Can File an Involuntary Lien?
There are several types of liens that could threaten the future of your homeownership. Involuntary liens can come from third parties such as the Internal Revenue Service (IRS), mortgage lenders, vendors for home repairs, mechanics, a plaintiff in a lawsuit against you, a credit card company, law enforcement, or regulatory groups such as an environmental control agency. You may face an involuntary lien if you:
- Don’t pay your mortgage according to the legal contract
- Don’t pay the IRS your taxes during tax season
- Break the terms of a payment schedule for expensive home repairs
- Fail to pay mechanics for home-related services
- Have a judgment against you from a civil court verdict
- Continuously fail to miss your credit card payments
- Fail to fix an environmental hazard on your property
- Break the law in some way, such as failing to pay multiple traffic tickets
Fortunately, not just anyone has the power to place an involuntary lien on your property. Federal agencies such as the IRS have this authority, but most creditors give up this right. There are contracts with creditors, however, that can ask you if you agree to a lien in the event of failure to pay. Read the fine print of the contract when you sign up for a credit card or make a purchase. In general, mortgage and vehicle lenders, the judicial system, and mechanics/contractors all have the right to place liens on properties without your consent.
How Do You Know When an Involuntary Lien Occurs?
In general, the third party filing the lien must give the property owner some kind of notice that the action is about to take place. The third party may have tried to contact the debtor for repayment of the debts to no avail. After debts go unpaid long enough, the party can issue a notice to the property owner that it plans to place an involuntary lien on the property in question. If you receive this notice, you may have a chance to discharge your debts before the actual approval of the lien. This can prevent the lien from becoming part of public record forever.
If you decline the opportunity to resolve your dispute with the third party, the third party has a deadline for which it may file the request for the lien. Deadlines and requirements vary according to state law. There are legal documents the third party must file with the appropriate governmental agency in the jurisdiction of the property to process the involuntary lien. From this point on, the third party can make the lien a priority claim by giving other debt collectors and lien holders knowledge of the involuntary lien.
A lien benefits the filing party in multiple ways. First, it puts pressure on the property owner to repay the debts he or she owes. It also almost guarantees that the third party will eventually get what the owner owes, one way or another. If the property owner can’t pay, the collector will possess ownership of the property. It then has the right to sell the property and use the money to discharge the debts. If a property with liens sells, the profits of the sale will go to the debtors in order of priority.
Searching for Adverse Liens Before You Buy
Liens can greatly affect real estate sales, resulting in the new owner becoming responsible for debts or having to enter into a legal battle. One can discover if there is a lien on a property through an online public records search. If you’re looking to purchase a piece of property, searching for liens is a wise idea. Otherwise, you could unknowingly buy a home with liens and encumbrances against it – potentially making the previous owner’s debts your own. Liens stay with the property, not with the owner. You can have instant access to the history of a property’s lien transactions, judgments, foreclosures, and encumbrances through an online search.
How to Release an Involuntary Lien
The simplest way to release an involuntary lien against one or more of your properties is to pay the debts you owe. Pay off the delinquent tax, credit, contractor, or other bill that gave cause to the lien. Once you satisfy your debts, the third party will release the lien from the property as it will no longer have a valid legal claim against it. The third party must file a legal document to formally release the lien against your property. Of course, it’s always best to avoid an involuntary lien in the first place.
If the involuntary lien on your property comes from the IRS, there are ways to remove the action. You can apply for a withdrawal of the lien if you believe the IRS has wrongly issued it against you. This may be the case if the IRS prematurely issued the lien on debt you already paid. You can also ask if the IRS will subordinate your debts after you give a partial payment. Subordination is often a solution in bankruptcy, but the two don’t have to go hand in hand. If you repay what you owe to the IRS, you will then have to obtain a Letter of Satisfaction – a statement from the IRS that says you successfully paid your debts. Only then will local or state authorities release the lien. An attorney can help you deal with involuntary liens and their release.