Liens allow individuals to have an interest or a share in another individual’s property. Liens create legal rights for a creditor to obtain a property if the individual fails to repay their debt.
Liens are meant to provide security to the individual who is taking out a loan to cover their obligations and debt. In general, a lien is public and informs creditors regarding any existing debts.
A lien is a formal document that is signed by the creditor to whom money is owed or the debtor who is agreeing to make the payments on the loan. The entity that is loaning funds wants to ensure that the individual makes payments on the loan.
A lien creates extra leverage against a debtor. A lender will become a lien holder upon an individual’s property when the correct paperwork is filed.
Once a lien is filed, the debt becomes secured. This provides the lender with a better chance of getting paid back what was lent to the debtor.
What is a Valid Lien?
Whether or not a lien is valid is determined by three factors, including:
- The party who acquired the property has absolute ownership of the property or a right in it;
- The party or entity that is claiming the lien is required to have an actual possession and to be in agreement with the party against whom the lien is being sought; and
- The lien must be based upon an implied or express agreement and the lien cannot be made to contradict the original purpose of the contract.
What are the Different Types of Liens?
The two types of liens which are available are general and particular. A general lien arises in the following situations:
- By agreement of the parties;
- By the general usage of trade; and
- By particular usage of trade.
When an individual claims to retain property on a specific property, it is considered to be a particular lien. In these situations, liens arise in certain ways, including:
- Through an express contract;
- By an implied contract; and
- By legal obligations among the parties.
What are Some Common Uses for Liens?
There are numerous common uses for liens. A lien can be used in order to secure various types of property, including homes and vehicles.
A home lien is used when an individual is interested in purchasing a home and borrows the funds to make that payment in the form of a loan. The lender may use the residence to serve as security.
If the individual fails to make the required monthly payments on their home, the lender is permitted to foreclose on the property. There are certain requirements which must be met in order to receive a loan which pays for a home.
Automobile liens are similar to home liens. If an individual purchases a vehicle, the lender may repossess the vehicle if certain conditions of the lien agreement are not met.
In addition, if a construction company completes a project for an individual on their property, they are obligated to pay that company. If the individual fails to pay, the construction company may file a construction lien with the recorder office of the county.
Local governments and federal governments can also collect unpaid taxes through liens. These entities are able to attach tax liens to individuals’ assets and may access the individual’s bank accounts to collect any outstanding tax balances.
If an individual wins a lawsuit against another individual, they may be able to collect money or property they are owed through a judgment lien. The plaintiff, or party who filed the lawsuit, may have the right to file a lien against property the defendant owns.
Judgment liens ensure that a defendant is required to pay the damages ordered if they are not collected from the defendant’s pocket. The state laws governing liens may vary by state.
In some states, there are strict deadlines for submissions of claims while other states are more lenient regarding deadlines. Because of this, it is useful to research lien laws in an individual’s state and to consult with an attorney who can advise them of the laws in their area regarding different types of liens.
What is a Real Estate Lien?
As previously noted, liens are financial claims which attach to pieces of property and may affect the ownership of that property. Typically, liens are attached when property is owned by one individual but is being used by another individual.
The attachment of a lien can compromise ownership of two types of properties, personal property as well as real property, which is also called real estate. The difference between the two types of properties is that personal property includes ownership of anything which moves.
Examples of personal property may include:
- Cell phones; and
Real estate is a type of property which cannot be relocated, such as land or anything which is attached to the land, for example, a home. Real estate liens arise when a lien is placed on real property.
Liens are created when an individual uses their land as a form of security interest or collateral in order to secure debt or obtain a loan. In some cases, a lien will automatically attach to property.
However, in many cases, the creditor is required to use the legal system and go through the legal process of attaching the lien.
What is the Process of Removing a Lien?
Typically, only a lien holder may remove a lien. There are, however, a few exceptions, which may include:
- Paying of the debt may get the lien removed. This applies to both homes and vehicles;
- Negotiating to settle with a creditor;
- Having the lien corrected;
- In certain rare cases, the lien may be lost or forgotten;
- Some liens will expire after several years and an individual may have a valid reason to get it removed.
If a disagreement arises regarding a lien, an individual may be able to bring a legal action in court to ensure that their rights are not violated.
What is the Impact of a Lien?
A lien can be alarming for some individuals, especially if they are having financial difficulty or difficulty paying off their debts. It is important to seek help as early as possible in order to resolve issues.
An individual can communicate with their creditor to determine what options are available. Typically, a lender or lienholder is confined to the right of retainer.
It is important to note, however, that some lenders may have the right to sell. A court can make a judgment for legal or equitable purposes regarding a lien.
When Do I Need to Contact a Lawyer for a Lien Issue?
It is highly important for an individual to have the assistance of a real estate lawyer for any lien issues, questions, or concerns they may have. If you signed an agreement for a lien or any other formal document which is an agreement to pay a creditor, issues may arise if that debt is not paid.
Because of this, it is important to consider your options as well as to communicate with creditors. If any disputes arise, it is important to contact an attorney as soon as possible.
Your attorney may be able to help you negotiate with the creditor. If that method is not successful, your attorney can assist you with filing a lawsuit and represent you in court.