A lien is a legal requirement to pay a debt and can be voluntary or involuntary. Liens are often placed on a significant piece of property like a home to ensure that a debt is paid.
There are dozens of types of liens, including homeowners’ association liens, tax liens, attorneys’ liens, judgement liens, and demolition liens. In addition, there are maritime liens that may be placed on boats. In general, a lien is a legal encumbrance or requirement that must be satisfied before the property can be sold.
The most common type of lien occurs when a person takes out a loan to buy a car. The loan company holds the title to the car until the loan is paid, which will not allow the car to be sold to another person until the loan company allows it. If the loan is not paid, the bank or loan company can repossess the vehicle or otherwise not allow it to be sold until the amount is paid.
Types of Liens
Liens are most frequently placed on property, such as a home. In order to discover whether a lien has been attached to a property one must contact the register of deeds in the county where the property is located. Liens are recorded in title files on the property ownership and will show up when a title search is done. Clear, lien-free titles are required before a property can be sold, so liens must be paid or cleared before a sale can be recorded. The existence of a lien will frequently complicate or delay a sale transaction as some liens may not be known to the property owner.
A mortgage is a consensual lien on real estate; the mortgage company must approve the sale of the property before the transaction can be completed. A mechanic’s lien is often nonconsensual as it is a legal judgement for payment that is attached to a property title to require full payment of money owed for improvements or work done on the property. Similarly, a town or other entity may encumber the sale of a property for taxes by attaching a tax lien on the title of a property.
How Liens Work
Liens like mortgages and some mechanics liens are usually consensual because the property owner agrees to them in order to take possession of a property or to have work done. A mechanic’s lien may also be applied after a contractor attempts to collect money owed for work on the property, making it nonconsensual.
Some judgement liens, attached to a property by court order, may disappear after a 10-year period but some states allow the lienholder to renew the claim before it expires.
If a property owner pays the amount required, the lien is removed and does not show up in subsequent title searches but may still be found in court records if the lien were imposed by a court judgement. It is important to have the discharge of the lien recorded or a future property sale will be delayed.