Liens grant a person or business a claim to another person's property. Since they assist with home loans, auto loans, and other aspects of your life, you hardly ever notice them when things are going well. However, liens can either make your life difficult or help you protect your interests when things go wrong.
How Do Liens Work?
A lien is a right or a legal claim made against real estate. Liens offer security, enabling an individual or group to seize property or pursue other legal remedies to pay off debts and obligations. Liens frequently appear in the public record, alerting other parties, including potential creditors, to past-due debts. Here's an illustration: You pledge to pay back your lender when you purchase a home. But if you stop making payments, your lender may need more from you than just your signature. However, the lender can become a lienholder (the party who files the lien) on your property by submitting specific paperwork to the relevant local government offices. Now that the debt is secured, there is a higher likelihood that the lender will be paid back.Why would a creditor want to make a claim against something you own?
If you don't pay your debt back, liens could give creditors the authority to seize and sell your property. Liens, which are public records, inform other prospective creditors that there are already claims against the property. When it comes time to receive repayment, new lenders won't be paid first. As a result, selling the property won't be possible until the lien is paid off. Liens, for example, frequently make it impossible for you to sell (or refinance) your house or car unless you settle any outstanding debts at the same time.Where Do Liens Originate?
Anytime a person has a legitimate claim to another person's property, a lien could result. They frequently make up a part of a contract to purchase real or personal property (home and auto loans, for example). Liens may also be created as a result of legal actions.Housing Loans
The home is used as collateral when you take out a loan to purchase it. If you don't follow the terms of your loan agreement, the lender has the right to foreclose on your home. You might have to pay rent or mortgage payments, insure the home, or even occupy it as your primary residence for a while.Car Loans
Auto loans are comparable to mortgages. One distinction is that your auto lender has the option to seize your vehicle through repossession rather than evicting you from your home (which accomplishes nothing). This may occur while you are at home, at work, or while you are out and about, so you won't always know when or where it will occur. Liens against your local Department of Motor Vehicles may also be filed as a result of car title loans (DMV).Liens on Mechanics (or Construction Liens)
Contractors expect to be paid for any work they do on your property. Workers may file a mechanic's lien with the county recorder's office if you don't pay (or if a contractor fails to pay subcontractors—even though that is not your fault).Liens on judgment
Someone might end up as a creditor if they prevail in a lawsuit against you. If they are unable to do so right away, they may be able to place a lien on any assets you own. When you are unable to pay out of pocket for damages, the judgment lien guarantees that they will eventually be paid. Fiscal Liens Local governments and the IRS sometimes use liens to recover unpaid taxes. Particularly problematic are tax liens. Taxing authorities have the ability to place liens on current and future assets, easily take money out of bank accounts, and possibly even go ahead and collect money before other creditors. For instance, the IRS typically collects before your lender, and bankruptcy might not be enough to discharge unpaid taxes. Local governments requiring money are frequently eager to collect, but the IRS occasionally moves more slowly.How to Remove a Lien
If you own property with a lien, you might have to keep it until the lien's root causes are resolved. There are a few exceptions, but in general, liens can only be released by the party who put them there in the first place.Repay it
If a lien is valid, you might eventually have to settle your debts to remove the lien. Liens are frequently removed when you sell your home or financed car, so the process might be simpler than you think.Settle
If you lack the funds to satisfy a debt, consider negotiating. If you can pay off the loan and get something for your creditors, they might be willing to accept less than what you owe. 9Have it fixed
Contact the lienholder if you think a lien is invalid. Lien releases can occasionally go missing or be overlooked. For instance, you might purchase a used car from a seller who had an auto loan in the past, and the lien release slipped through the cracks. It might only require bringing the issue to the proper person's attention.Contradict it
Things become much harder when there is a disagreement of any kind. The lien may need to be released through legal action taken against the lienholder. Additionally, it's a smart idea to check to see if any claims are still valid because some liens have a time limit, after which they become ineffective.Most Commonly Asked Questions (FAQs)
A lien: Does it damage your credit?
While liens do not appear on your credit report, failure to pay a debt that may result in a lien will and will negatively impact your credit. For instance, if you receive a judgment against you and a lien is put on your assets because you were unable to pay a debt, only the judgment will appear on your credit report. The lien, however, won't. A lien won't harm your credit if it relates to a car or house loan, and you repay the loan as agreed.Can you discharge a lien through bankruptcy?
If you file for bankruptcy, any liens that have been placed on your assets or real estate to collect a debt may be released. Tax liens and other debt liens may be more difficult to discharge in bankruptcy. As long as you continue making those payments, you might be able to keep your house or car even if you still owe money on them.What distinguishes a tax levy from a tax lien?
If your property, such as your house, has a tax lien against it, you cannot sell the property until the lien is paid. The IRS will use a tax levy to get the money you owe in back taxes. For instance, the IRS might levy your bank account, which means it will withdraw funds to pay off your debt.