What Is A Lien
Thursday, 19 January 2017
by Erin McAllister, Paralegal
Below are types of liens that could be placed on property by creditors:
• Judgment Lien. A creditor who wins a judgment in a court action can attach a lien to real or personal property to pay off the judgment. Because procedures for a judgment lien vary from state to state, it is wise to consult an attorney.
• Property Tax Lien. If you have any delinquent property taxes on any real property you own, the county where the real property is located can place a lien on your property. This lien would have to be paid off before your title would be considered clear of any encumbrances should you want to sell.
• Tax Lien. If you accumulate back taxes after receiving notices from the IRS, it may place a lien on any or all of your property. If you’re unemployed, self-employed, or sporadically employed and the IRS would have trouble attaching your wages, a tax lien could be used. The IRS may force a sale if the amount you owe is substantial.
• Child Support Lien. If you owe a significant amount in child support or alimony, the recipient may put a lien on your real estate. The lien will stay until you pay the support you owe, until you sell or refinance your property, or until the recipient forces a lien sale, whichever happens first.
• Mechanic’s Lien. If a contractor works on your property or furnishes construction materials to be used on your property, and you don’t pay for those services, the contractor can record a lien on your property called a mechanic’s lien. In most states, the contractor must record the lien within one to six months of when the contractor wasn’t paid. The contractor then must sue you to enforce the lien within about one year (the range is one month to six years, depending on the state). If the contractor wins the lawsuit, the contractor may be able to force the sale of your property.
• Family Law Real Property Lien. In some states, in a marital action a spouse may file a lien against his or her interest in community real estate to secure payment of attorney’s fees in the action. The lien affects only the filing spouse’s interest in the property.
• Consensual Lien. Liens a debtor voluntarily consents to, as a result of a loan or other advance of credit. The property purchased secures the buyer’s obligation to pay for the property.
o Purchase-Money Security Interest Liens. Here, the creditor extends credit to the debtor specifically for the purchase of the property that secures the debt. Examples include a first mortgage on a home, a car loan, and situations in which the seller finances the purchase of property, such as furniture, through a credit agreement.
o Non-Purchase-Money Security Interest Liens. The debtor puts up property he or she already owns as collateral for a loan. The loan proceeds are then used to pay expenses (or perhaps to buy other property). Examples include a second mortgage (or refinancing of a mortgage) on a home, or a loan used to pay operating expenses with previously owned office equipment put up as collateral.
Both types of consensual liens are usually non-possessory. This means that the creditor does not take or retain possession of the property; rather, the debtor takes, or retains, possession of the property. However, it's possible for either type of consensual lien to be possessory. In that case, the creditor takes possession of the collateral. A loan from a pawnbroker, for example, usually would create a possessory, non-purchase-money security interest lien in the collateral.
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