Is It Bad to Have a Lien on Your Home or property?

Anbarasan Appavu

If you have a mortgage, your home is subject to a lien. A lien is a legal claim that gives the bank that financed your loan the right to seize your property if you default on your payments. Anyhow, this type of lien on property is not always a negative thing. Due to the fact that it is an integral part of the home-buying process, many homeowners have one.

Lien Effects on Your Home or property?

However, not all mortgage liens are identical. Some can actually harm your credit score and affect your financial future. So which liens are detrimental? Here are some important facts about liens, including their various types, their impact on your credit score, and how to remove them.

• Liens are creditors' legal claims against property that allow them to collect what is owed.

• Liens can be general or specific, voluntary or not, and general or specific.

• If a homeowner fails to settle an obligation, the lienholder has the legal right to seize and sell the property. • Tax liens are no longer reportable, but other involuntary liens may affect your credit score.

• Homeowners can remove liens by negotiating payment plans or settling their debts.

What Is a Lien?

A lien is the creditors claim or legal right against a property. Creditors, such as banks and credit unions, commonly place liens on property, such as homes and automobiles, in order to collect what is owed to them. Additionally, liens can be removed, giving the owner clear title to the property.

Creditors are given a stake in the property in exchange for what is owed to them, limiting the owner's ability to dispose of the asset. If a homeowner attempts to sell a property before a lien is removed, complications may arise, particularly if the lien is involuntary.

Liens provide creditors with certain legal rights, particularly when a debtor fails to pay or refuses to fulfil the financial obligation. In such instances, the creditor may choose to dispose of the property through sale.

What Are the Types of House Liens?

There are various types of liens, including specific and general liens. Certain liens are attached to a specific asset. For example, the car dealer where you purchase your vehicle may have a lien on your vehicle and nothing else. A mortgage lien is a creditor's legal claim on real property (a house).

In the case of a general lien, the creditor may seize all of your assets, including your home, vehicle, furniture, and bank accounts. The creditor has a broad claim against the debtor's assets in the event of default.

Additionally, liens can be voluntary or involuntary (aka consensual or nonconsensual). When a bank advances a mortgage to a borrower, the bank takes out a voluntary lien. If a borrower defaults on a loan or other financial obligation, a creditor may pursue legal recourse by filing a lien with a county or state agency for an involuntary lien. A contractor, a government agency, or another type of creditor may file a lien.

Tax Lien

The government will place this lien on your property if you owe unpaid income taxes, business taxes, or property taxes.

For example, if you owe unpaid federal taxes, the Internal Revenue Service (IRS) may place a lien on your home. First, the agency provides you with written notice of your obligations. The IRS may place a lien on your home and other assets if you do not respond or if you fail to make suitable arrangements to pay off the debt. The only way to remove this type of lien is to settle the delinquent debt.

General Judgment Lien

This type of lien is granted to a creditor following a favourable court ruling. When a debtor fails to fulfill their financial obligations, the creditor may decide to file a lawsuit against the debtor for any remaining balance.

If the court rules in favour of the creditor, the lien must be recorded with the county or the appropriate recording agency. This gives the filer the right to seize a piece of real or personal property if the debtor does not reach an agreement to repay the debt. Property may consist of a business, personal property, real estate, automobiles, or any other asset that satisfies the court's judgement.

Mechanic’s Lien

When a property owner fails or refuses to pay for completed work or materials, construction companies, builders, and contractors may file a mechanic's lien, also known as a construction or property lien.

This legal document enables entities to receive compensation in the event of payment problems resulting from a breach of contract. Before filing this type of lien, most contractors and other businesses send the debtor a demand for payment and a notice of intent.

If the debtor refuses to settle, they may move forward. This requires filing paperwork with the county or local agency containing information about the property, the type of work performed, and the amount owed. If the debtor persists in refusing to pay, the lienholder may choose to enforce the lien.

Do Liens Hurt Homeowners?

True and no. Let's start with the negative. There is no correlation between the placement of a mortgage lien and your repayment history. Everyone with a mortgage has a voluntary lien like this on their property, so it shouldn't be a problem for you as long as you make your regular mortgage payments. Once the mortgage is paid off, the lien is removed and you are liberated from the burden.

Now let's examine the affirmative. Any other type of lien is generally detrimental to the homeowner. A lien indicates that a debt has not been satisfied, resulting in legal action. Although a lien does not indicate that the property's title has been transferred, it could be a step in that direction if the creditor follows through.

This could result in the worst-case scenario. Possibilities include the property being seized and sold, especially if unpaid property taxes are the cause. This is less common than you may believe. The majority of lien holders choose to wait for the homeowner to settle the debt or sell the property rather than foreclose.

On the other hand, creditors or workers such as contractors benefit from a lien. This is due to the fact that liens protect their rights, ensuring they receive payment for services rendered to a homeowner.

How Are Credit Scores Affected?

There may be confusion regarding how liens impact your credit score and which ones actually appear on your credit report. Certain mechanic's liens and judgement liens are reportable, meaning they frequently appear on your credit report. They contribute to your repayment history, which accounts for more than a third of your credit score.

Before closing on a home, your attorney or title company should conduct a title search to ensure the title is free of liens, delinquent taxes, and other claims. Avoid skipping the title search, as it is the most effective way to ensure that no one else has a claim to the property.

A creditor must have a minimum amount of identifying information, such as a debtor's date of birth or Social Security number, in order to report them (SSN). Even after paying off a lien, it may remain on your credit report for up to seven years.

However, not all liens have a negative impact on credit scores. For instance, a lien on your home or vehicle that you're still paying off will not appear on your credit report.

The same holds true for tax liens. As of April 2018, the three major credit reporting agencies, Equifax, Experian, and TransUnion, have removed tax liens from their credit reports. The number of errors, inconsistencies, and disputes they received caused the agencies to cease reporting them.

Request a free credit report from Experian, Equifax, or TransUnion at to determine if there is a lien against you. The Fair Credit Reporting Act mandates that each of these credit reporting agencies provide you with a free copy of your credit report once every 12 months upon your request.

What Happens If a Property Lien Is Not Paid?

The purpose of a lien is to safeguard the creditor and ensure that the debtor fulfils their financial obligations. If reasonable steps are taken to fulfill the obligation or an alternative payment plan is arranged and adhered to, then the debtor should not be subject to a property lien.

However, things may alter if this does not occur. After all other attempts to settle a debt have failed, a creditor may place a lien on the property. This indicates that the creditor has attempted to contact the debtor to collect on the debt but has been unsuccessful.

What Are Property Tax Liens?

The municipal government has the authority to place a lien on a property when landowners or homeowners fail to pay their property taxes. This means that the owner cannot refinance or sell the property until the lien is satisfied.

The government issues a tax lien certificate upon imposition of the lien. This document contains information about the property, the amount owed, and any additional fees, including interest and/or penalties. Municipal governments may auction these certificates to investors who pay a premium in addition to the principal amount. This permits the government to retrieve the funds.

If the property owner decides to settle the debt and remove the lien, they must pay the investor the outstanding debt plus any additional interest and premiums paid by the investor. When the debt is paid in full, the lien is released. If the debtor fails to repay the debt, the lienholder, in this case the investor, can enforce the lien in order to recover their investment.

How Can a Lien Be Removed?

There are numerous ways to remove a mortgage lien from a property. The initial step is to negotiate a resolution with the lien holder. The settlement procedure depends on the type of lien, the debtor's and lienholder's relationship, and the lien's value. In some instances, a lienholder may agree to release the lien if both parties agree to a payment schedule.

Paying off the debt is the simplest way to remove a lien from your property. Once the debt has been repaid, you can submit a Release of Lien form as evidence that the debt has been satisfied.

Remember that a lien is attached to the property, not the owner of the property. Due to this, a property owner can be released from a property lien by selling the asset to which the lien is attached.

There are disadvantages associated with this course of action. Although the homeowner will receive proceeds from the sale, they are required to pay off the lienholder first. And it may be difficult for a homeowner to sell a property with a lien on it. Prospective purchasers may avoid a property with a competing claim.

How Do You Remove the Lien from Your Home or Property?

The simplest way to remove a lien is to pay the delinquent debt in full or by establishing a payment plan. A lien is a claim on assets in the event of default; there are no liens if there are no outstanding debt obligations.

How Do Property Liens Work?

Property liens are legal claims against a debtor's property granted by a court to a creditor when the debtor fails to pay. The filing of liens with the county office and notification of repossession to the property owner (s).

What Types of Liens Can Be Placed on a Home?

General or specific liens can be either voluntary or involuntary. Tax liens, judgement liens, and mechanic's liens are examples of particular liens.

Can You Have a Lien on Your Home From the Previous Owner?

Not typically. In general, people do not purchase homes with existing liens, and the majority of sellers remove any liens prior to listing in order to avoid delays and other issues. Even if a buyer were willing to assume a lien, it is unlikely that a lender would finance the purchase.

Nonetheless, there are instances in which liens are transferred to buyers, such as when a home is acquired through a foreclosure or auction, and the buyer becomes responsible for the attached liens.

How Do You Do a Property Lien Search?

Liens are recorded in the public record. In the majority of states, you can conduct a free search by address on the websites of the county recorder, clerk, or assessor. You can also appear directly at the county's office or, for a fee, hire a title company to conduct the search on your behalf.

The Bottom Line

Until they pay off their mortgages, all homeowners have liens against their homes. Because these liens are voluntary, they do not harm your finances or credit score. However, other liens can harm your finances and credit rating.

Uncle Sam and other creditors can file a tax lien, judgement lien, or mechanic's lien against you if you do not fulfill your financial obligations. If you continue to fail to pay, they may enforce the lien, foreclose or seize the asset, and pay off the debt on your behalf.

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