Types of Liens

How do Liens Work?

A lien is a security interest (essentially a demand that can’t be ignored forever) for payment that is placed on the title to a property. Liens, which can be voluntary (as a result of terms of a loan) or involuntary (as a result of a court judgement), are often placed on the title to a home for future payment of a debt. Similarly, a mechanic’s lien is often placed on a property by someone who does construction to improve the property.

Other reasons for liens include unpaid taxes (local, state, or federal), as a way to enforce local ordinances, and for unpaid homeowners association fees. There are a myriad of liens, from a landlord holding a tenant’s personal property until past due rent is paid to bankers freezing assets of debtors to healthcare liens for care that’s not covered by insurance.

Perfected liens are those that are first in line for payment because the lienholder has secured property as collateral for a loan and filed the necessary paperwork with the state or county deed office. Requirements vary by state.

Be aware that liens have a negative effect on the debtor’s credit rating and make selling an encumbered property very difficult. Liens are removed when the payment is made or judgement reversed.

How to Place a Lien

If you are owed money, you may go to court to get a judgement against the individual or business that has not paid you for goods or services. With the resulting summary of judgement in hand, you may then approach the county clerk, the bank holding the individual’s or business’s assets, and the county recorder of deeds to seek liens on properties and assets. Check with local and state officials to get detailed instructions as requirements may vary. Infotracer.com is one resource that may list the debtor’s properties and even large assets such as boats and other vehicles that can be “attached” or liened in lieu of payment of the judgement. The local sheriff may seize property and auction it for nonpayment of the judgement.

How To Remove a Lien

Liens are frequently placed on the property to force payment of a fee or loan that is in default, and only the lienholder can release it.

Negotiating with the lienholder may result in favorable terms that allow the debtor to make more budget-friendly payments on the loan and eventually be released from the lien. Another way to remove a lien is to give the lender the title to the vehicle or other articles that the loan purchased. Also, selling the property that is liened may produce cash to pay off what is owed, but liens stay on a property when ownership changes, making a sale very difficult.

When a lien is released, be sure to get the release document notarized and file copies with the county clerk and other authorities to clear the lien.