Understand the Real Estate Liens


Real estate liens can arise when a property is sold, mortgaged, or transferred. They can pose major issues for both the buyer and seller of a home, so recognizing and avoiding them is critical.

A mortgage lien is the most prevalent sort of lien, which is generated when someone takes out a loan to buy a home. If the borrower fails to repay the loan, the lender has the authority to place a lien on the borrower’s property as collateral. This implies that if the debt is not paid off, they may seize custody of it.

Another significant source of liens is property taxes. If you do not pay your property taxes on time, the local government may place a lien on your property until you have paid your obligation.

What are Real Estate Liens and How do they Work?

Real estate liens are legal claims that can be lodged against real estate as collateral for debt repayment. If the obligation is not paid, the holder of the lien has the legal right to foreclose on the property. Liens are classified into two types: voluntary and involuntary.

  • Voluntary liens occur when a property owner expressly grants a lien on their property in exchange for credit or services. Mortgages, construction debts, and home equity loans are a few examples.
  • Involuntary liens are those that are put on a person’s property by a court order or by operation of law to settle a debt. This form of lien is often imposed as part of an outstanding tax obligation or as part of a court judgment. When it comes time to sell the property, involuntary liens have priority over voluntary liens in terms of payments.

Different Types of Real Estate Liens: Tax Liens, Mechanic’s Liens & More

A real estate lien is a financial claim on someone’s property. Lenders often place them and file them with the county office in charge of registering property records. This is done to safeguard their financial interests if a borrower defaults on a loan or fails to pay a bill.

Common types of real estate liens include:

  • Tax Liens: When a homeowner fails to pay taxes, a tax lien is imposed on the property. These take precedence over any other mortgages or liens on the property, so be sure all taxes are paid in full before entering into any real estate deals.
  • Mechanic’s Liens: These are claims brought against a property by a construction contractor who has not been compensated for his or her work. A mechanic’s lien is similar to collateral in that it permits the contractor to be compensated for his or her services even if the homeowner is unable to pay for them.
  • Statutory Liens: These are the results of state and federal legislation, such as court judgments, delinquent child support, or unpaid school debts. If you have this form of the lien imposed on your property, you must contact the entity that issued it and have it removed before proceeding with any real estate transactions.

What to Know About Lien Priority and Permissive Liens?

The “first in time, first in right” criterion governs lien priority. This implies that when money is available, the lien that was filed initially is paid off first. This provision, however, only applies to liens filed for the same amount. Attorney’s liens take precedence over permissive counterclaims, which means that if an attorney has a lien on a property, he or she will be paid first if money becomes available through a foreclosure sale or other liquidation.

Security interests and agricultural liens have their filing procedures and, in some situations, may take precedence over other forms of liens. When it comes to foreclosure procedures, agricultural liens, for example, may take precedence over mortgages issued previous to the lien. Before engaging in any real estate transactions, it is critical to understand these disparities so that proper precautions may be taken to safeguard the security of one’s interests.

Reasons for Filing a Real Estate Lien

Liens on real estate can be filed for a variety of reasons. Understanding the steps through which a lien can be put on a property is vital for every property owner, from missed payments to outstanding bills.

Common reasons for filing a real estate lien include:

  • Non-payment of taxes: Local governments may place a lien against properties that have unpaid taxes or other fees.
  • Unpaid services or materials to improve the property: Lienholders are often suppliers who provided materials or services to improve the property but were not paid after the work was completed.
  • Homeowners associations: If a homeowner is delinquent in paying dues, homeowners associations can place liens against the property to get their money.
  • Judgment debts: Failure to pay off financial judgment debts within a certain timeframe can result in liens being filed against your property.

Understanding what conditions might result in a real estate lien will allow you to make more educated decisions about how to protect yourself and your interests.

How to Avoid Property Liens & Common Pitfalls?

Nobody wants to be surprised by unexpected property liens, and there are various steps property owners may take to avoid this circumstance.

  1. Contractors who work on the property should sign a lien waiver. This helps to demonstrate that contractors were paid for their work and prevents them from subsequently claiming a lien against the property.
  2. It is critical to request invoices from contractors who perform work on the premises. These safeguards can help to protect the owner if a contractor files a lien on the property but does not have proof of payment.
  3. When filing a lien, it is also critical to verify that all documentation is filled out to indicate the correct owner or management of the property. This will assist you to avoid any legal complications that may arise as a result of misaligned ownership documents.

How to Protect your Property From External Liens?

Property owners may be surprised to receive a real estate lien when they least expect it. Liens are meant to acquire finance and preserve assets, but they can become an issue for the property owner in some cases. Fortunately, there are methods to avoid being entangled in someone else’s lien.

  • Asset Protection
  • Asset protection is a legal technique that may be used to shield one’s assets from unforeseen future claims. It is possible to establish a trust or other legal body that offers creditor protection so that your investments and real estate assets are not subject to external liens.
  • Judgment Liens
  • Exemptions can preserve judgment debts on real estate. Debtors in some states, like California, have the authority to exclude a particular dollar amount of equity in their house from creditor judgment liens. Debtors can invoke homestead exemptions in other jurisdictions, including Texas, to protect their principal house from lien foreclosure even if the underlying judgment is not dismissed. Knowing the exemption rules in your state might help you protect yourself from prospective creditors and liens on your property.

When to Hire a Real Estate Attorney for Lien Disputes?

When lien issues emerge, it’s critical to have the right legal representation to guarantee the best possible conclusion. A real estate attorney is usually the ideal person to handle such issues and advise the property owner or lender through the settlement process.

An attorney may assist with a range of concerns, including knowing local and state liens laws, navigating the dispute resolution process, and speaking with other parties involved. It is generally in the best interests of a property owner to employ an attorney who is educated about real estate liens to safeguard their rights during any potential lawsuit.

When it comes to lien disputes, attorneys can:

  1. Give legal counsel on foreclosure proceedings and other collection matters.
  2. Negotiate payment plans or other forms of settlement with lenders.
  3. Represent property owners in lien-related judicial actions.
  4. Liens should be challenged if they are baseless or erroneous.
  5. Prepare lien release agreements for both lenders and borrowers.
  6. Consider the tax consequences of debt forgiveness as a result of a lien relief arrangement.
  7. File motions for summary judgment or orders of the sale in connection with lien resolutions.

When dealing with a difficult dispute involving property liens, hiring an experienced attorney with expertise in real estate law is critical. An attorney may help you safeguard your assets while limiting financial losses from a prospective foreclosure or long-term debt obligation, both of which should be avoided at all costs.

Property liens are a significant concern that can have major financial consequences for landlords and homeowners. To avoid the problems of liens, it’s essential to educate yourself by knowing the basics and common forms of liens, consulting with a legal expert, and studying the best strategies to safeguard your property. If you uncover a lien on your property, the best course of action is to act fast and find a means to pay it off to avoid any additional fines or repercussions.