Mortgage liens: What they are and how they work

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Mortgage liens are an essential part of the process of buying a home. Here’s how mortgage liens work, the difference between voluntary and involuntary liens and how you can make sure your mortgage lien doesn’t become a problem.

What is a mortgage lien?

A mortgage lien is a legal claim to your property, which serves as collateral — or real security — for your mortgage. This means that if you default or stop making payments on your mortgage, the lien permits the lender to take possession of and sell your home to recoup the outstanding debt.

Although they sound negative, mortgage liens make homeownership possible for many people. As long as you pay your mortgage on time each month, the lien doesn’t keep you from selling your house or refinancing your mortgage.

Are mortgage liens bad?

Having a mortgage lien is not necessarily a bad thing if you continue to make regular payments on your loan. All homeowners with mortgages have a lien on their property. Involuntary liens, on the other hand, are placed on properties when owners are unable to pay their debts, such as property taxes. In order to sell your home, you’ll need to get these liens removed, which can be difficult to do if you can’t settle the debt.

Mortgage lien types

Liens are mainly classified two ways: as general or specific, and as voluntary or involuntary.

General liens vs. specific liens

General liens are less common than specific liens. The key difference:

• General liens: A general lien gives creditors the authority to seize a permissible possession if payment terms are not met. If someone fails to pay their federal income taxes, for example, the government can place a general lien on all of their assets, including their home.
• Specific liens: A specific lien is tied to one certain asset and typically used for larger loans, such as mortgages. If you get a mortgage for a vacation home, for instance, the lender will put a lien on that specific property, not on your primary residence.

Voluntary property liens vs. involuntary property liens

• Voluntary property liens: These are created through a mortgage agreement, in which you allow the lender to use the property as collateral in exchange for a loan.
• Involuntary property liens: These are liens placed without your consent, typically as a result of unpaid debts. If you cannot pay your property taxes, for example, your county or state tax authority might place a lien on the property.

How do I remove an involuntary lien?

Here are some ways to avoid or get rid of involuntary liens:

• Stay current on all payments due, or pay off the debt in full.
• Regularly monitor your credit to ensure there are no delinquencies that could translate to an involuntary lien.
• Request a payment plan from the tax authority or the lender if you’re having trouble making payments.
• Dispute it with the issuer if it’s an erroneous lien.
• Hire a lawyer to settle a disputed lien.
• File for bankruptcy, which automatically erases some liens, such as second mortgages (this should be an absolute last resort, however).

Those last two remedies can be costly, both financially and with respect to your credit. If you can’t afford to settle the lien debt, it might not be possible to retain an attorney to settle it, either. Likewise, bankruptcy comes with filing fees and — more importantly — harms your credit, which makes it that much harder to obtain a loan in the future.

Once you’ve arranged to remove an involuntary lien, there are usually some additional steps to finalize it. For example, if you’ve paid off your debt, you’ll have to get the lien holder to sign a release-of-lien form and submit it to your local government office. Depending on where you live, there might be a small fee for filing it. Your lender might also charge a reconveyance fee for removing the lien.

Other types of property liens

Aside from mortgage liens, there are many different types of property liens, each with its own purpose and restrictions. These include:

• Property tax lien: Your state or local government can issue a property tax lien for unpaid property taxes.
• Federal tax lien: The IRS can place a lien on your property due to failure to pay your federal taxes. This lien can cover your personal property as well as other real estate assets, any vehicles and financial holdings.
• Homeowners association (HOA) lien: In most jurisdictions, your HOA can place a lien on your house if you do not pay your HOA fees.
• Mechanic’s lien: Contractors can place a lien on your home if you do not pay them for work they’ve done on your property.
• Judgment lien: In the event you lose a lawsuit, the plaintiff could file a judgment lien until you pay the money the court awarded to the plaintiff. Collectors of credit card debt, outstanding medical bills or personal loans might also secure a judgment lien against your property.

Mortgage lien FAQ

• How can I find out if there are any mortgage or property liens on my property?

  In the majority of states, property owners can perform a lien search by providing the property address to the county recorder, clerk or assessor’s office. You might need to pay a nominal fee to obtain a copy of the lien. Alternatively, you can try doing a lien search online on your own for free. Note that if you’re selling your home, the home will be subject to a title search to determine if there are any outstanding liens on your property. If there are, you’ll need to resolve the issue to remove the liens before closing.

• What is lien priority?

  The priority of liens on a property, sometimes called lien positioning, identifies which debt will be repaid first in the event of default and foreclosure. When the collateral, such as a home, is sold, the creditor with the highest- or first-priority lien gets paid out first, followed by the second-priority lien holder and so on, until the proceeds have been exhausted. This means that creditors with liens in a lower position might not recoup all of their losses, or recover their money at all. There’s one exception to lien positioning, however: money owed to the government, such as federal and property tax liens. These trump the “first in time, first in right” rule.

• What is lien release?

  A lien release simply refers to the creditor or lender removing, or lifting, the lien from the asset. This takes place when you pay off the debt. In the case of a mortgage, you’ll receive a satisfaction of mortgage or reconveyance document when you pay off the loan and the lien has been released.

• Will having a lien prevent me from securing a new loan?

  You might not be able to obtain a new mortgage (such as refinancing) or sell your home if there’s an involuntary lien on the property. That’s because most lenders won’t lend on a home with outstanding liens.