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Liens are used to provide security to lenders in the event the borrowers fail to repay a debt. They are used by private lenders, as well as tax agencies like the IRS, and even family courts that enforce the payment of child support. While the actions that owed parties can take toward the delinquent borrower are limited, a lien is a way to apply pressure to the party that owes that debt that can influence the responsible party to take steps to settle their debt. A lien is defined as “a right to keep possession of property belonging to another person until a debt owed by that person is discharged”.
Involuntary Liens, also known as Non-Consensual Liens refer to liens that are obtained against a borrower’s property without their consent. These types of liens are sometimes granted by courts, and the approval of the party that owes a debt is not sought or required. Involuntary liens fit into four common types of liens:
In understanding involuntary liens fully, it is important to know how each type of involuntary lien is applied, how long it takes to obtain, and which parties are involved.
Court-granted liens are imposed only after someone sues someone else and wins a money judgment. Then the judgment creditor, or winning party, records the judgment by filing it with the county or state, and this results in a lien against the debtor’s property. This property is most often real estate the debtor owns. There are a few states in the U.S.where a judgment entered against a debtor automatically creates a lien on the real estate the debtor owns in that county—that is, the judgment creditor doesn’t have to take extra steps to record the judgment to get the lien.Seeking the judgment from a court is required before lenders or collection agencies can try to recoup the money owed by going after the debtor’s property. There are also steps that the judgment winner may pursue before seeking a property lien, such as garnishment of wages or a drain / levy of a bank account. Property targeted by liens can include real estate, vehicles, and other higher-value personal property, such as art or jewelry. The personal property can be harder to collect against as there are exemptions that can apply to certain categories of personal property in certain states. Liens usually expire after seven to ten years, but they can also be renewed. Liens can also affect property purchased after the lien was granted.
When a builder works on a house, or a mechanic puts hours into repairing a car, and they are not paid for their work, they can file a mechanic’s lien. This means that they hold on to the property until they are paid. This type of lien is also referred to as a Construction Lien or a Supplier's Lien. This type of lien is filed by filling out a form, which can be obtained online. The value of the property and the amount of debt is detailed, and the parties involved in the contract are listed. All the parties must sign this form in the presence of a notary. Having this form on file will protect the party holding on to the property, such as a car or motorcycle.
Like the Mechanics’ Lien, a possessory lien allows the party that is owed a debt to hold on to the collateral property that is already in their possession. In order to qualify for this type of lien, the creditor must already hold the possession (such as an item at a pawn shop), and take no action to seize it. No form on file is needed as long as the item is already in possession.
When a taxpayer defaults on their tax obligations, the IRS can file a tax lien against their property. A federal tax lien is a document that gets filed by the IRS with a county government. This isnormally where the taxpayer lives or conducts business. The lien notifies the general public that the taxpayer has an unpaid federal tax debt. If a property is sold while a lien is in effect against it, the IRS receives payment out of the sales proceeds before the seller receives any money. Filed tax liens are public record.
In conclusion, there are several types of involuntary liens that allow lenders, service professionals and the U.S. government to seek repayment of debt. It is important to know how they work and understand the process, and the way it affects both the owed party and the debtor.