What is a Lien?

A lien is not the end of the world, nor is it uncommon.

Maybe you’ve had some bad luck recently. Perhaps you lost your job, or business is painfully slow, or you had unexpected bills.

To cover yourself, you borrow money to get back on your feet again, thinking your luck will turn around—but things don’t seem to be going in your favor.

Before you know it, you’re further into debt, and creditors are calling. Rather than face them, you avoid the issue. After all, you don’t have the money––what can they do?

Creditors’ Tool

When creditors want you to know they mean business, they may choose to take legal action by placing a lien on your biggest asset—your home.

A lien is a legal document acting as security for the debt by giving the creditor a stake in your home. When there is a lien on your home, what you can do with the property is limited. You may not be able to take out a second mortgage or home-equity loan with an unpaid lien

If you decide to sell your home, the lien must be paid off at closing with the proceeds of the sale.

Common Liens

There are a number of different types of liens creditors may place on your home. The most common are mechanic’s liens, judgment liens and tax liens.

§  Mechanic’s Lien: When general contractors build your home—or repairmen, carpenters, plumbers or painters work on your home—they may file a mechanic’s lien on the property as insurance to make sure they’re paid.

§  Judgment Lien: If you have lost a court case and there was a judgment against you, the winning party of the lawsuit can file a judgment lien against your home until the payment is collected. This type of lien is also sometimes imposed by an attorney if you do not pay your bill for legal services.

§  Tax Lien: If you do not pay your federal, state or county taxes, the government may file a tax lien on your home.

Removing a Lien

It is in your best interest to have any lien against your home removed as quickly as possible. The simplest way to have a lien removed is to negotiate with the lien holder. For example, settling the lawsuit or paying any outstanding bill to your contractor should remove the lien. If you owe back taxes, the Internal Revenue Service may agree to remove the lien on your home if you plan to sell the property and agree to a payment plan to repay the past due amount.

If you feel the action is unjustified, you can file a lawsuit to have the court order the lien removed. Your case will be investigated, and if there is no basis for the lien, or if you can prove the debt was paid, it will be removed.

Updated from an earlier version by Aviva Friedlander.