Real Estate Liens

A real estate lien is a debt collection mechanism that allows a creditor to place a claim against a piece of property. This means that the creditor is entitled to a portion of the proceeds from the sale of the property.

Many kinds of secured loans are dependent upon real estate liens or the threat of them. In real estate equity loans or lines of credit, the lender and borrower sign a contract giving the lender the right to place a lien on the borrower's property if the loan is not repaid. These are called voluntary liens. Involuntary liens are those placed, without prior agreement, to collect debts.

A real estate lien gives a creditor the right to hold up sale of the property. In some states, it can also give him the right to ask the court to auction the property to pay off the borrower's debts. The laws governing real estate liens vary substantially from state to state. In many cases, creditors will use real estate liens to collect unpaid secured loans.

Types of Real Estate Liens

Real Estate Liens

There are a number of different kinds of real estate liens. State and local laws limit the kinds of liens available in many areas.

  • General Lien - This lien would be filed on all the property of a person or business.

  • Voluntary Lien - A lien placed on property as collateral in a secured loan. The owner of the property has to agree to this kind of lien.

  • Involuntary Lien - A lien placed against property to collect a debt. This device normally requires legal action such as a court order.

  • Specific Lien - A lien filed on specific pieces of property such as collateral used in secured loans. In many cases, a creditor will use this device in an attempt to seize a specific piece of property.

  • Lien of Judgment -Usually filed as an attempt to seize real estate in order to pay a lawsuit judgment. A creditor can use this kind of lien to collect by filing a lawsuit and getting a court judgment.

  • Mechanic's Lien - A lien used by a contractor to force payment for work done on a property.

  • Tax Lien - A mechanism designed for the collection of unpaid property taxes.

Laws Governing Liens

The only way to collect on a real estate lien in most states is to get a civil court judgment against the property owner. In some cases involving secured loans, borrowers may waive this right when they sign the loan agreement. Even in such cases, the lender will probably need to get a court order to enforce the lien.

An individual usually has the right to challenge liens against property. If the liens are not challenged, the court will presume they are valid and enforce them.

Liens usually do not lead to the loss of property but they can seriously hamper property owners' activities. It is usually impossible to get a mortgage or a secured loan on a property encumbered by real estate liens. It can also be hard to sell such property. This is why mortgage companies run title searches on properties before issuing a mortgage.

It should be noted that holders of real estate liens could be given priority in debt collection in bankruptcy court. In some states, the courts can seize and auction property to pay off real estate liens. The holders of secured loans on the property get a portion of the proceeds.

Limits to Real Estate Liens

There are limits on real estate liens in many areas. In some states, such as Florida, liens cannot be filed against an individual's home even in cases of bankruptcy. Therefore, a person should always check local and state laws before filing a real estate lien.

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