What Is a Lien on a House?

At some point during your real estate journey, you’ve probably heard the term “lien.” Unfortunately, house liens often have negative connotations, and most people prefer to avoid them. However, you might be surprised at how common property liens are. There’s a good chance your own home already has one on it, and the good news is that liens aren’t necessarily as bad as they sound.

Read the following guide to understand precisely what a house lien is and how it can impact you as a homeowner, seller or buyer.

Property Liens: The Basics

A property lien is essentially a legal claim against a property made by a creditor who is then able to use the house as collateral. If the borrower, i.e., the homeowner, defaults on the loan, the creditor can use proceeds from the sale of the home to collect what they’re owed.

For example, if you take out a loan to finance a large purchase, the lender will want to secure the loan repayments for the duration of the contract. To do this, they will use one of your assets as collateral, most commonly your home. If you make the payments as agreed, there won’t be a problem.

However, if you fail to repay the loan, the lender can file a property lien on your home with the local county office. If successful, they’ll have the legal right to force the sale of the property to recover the amount owed.

The most common example of a property lien is generally the result of a homeowner falling behind on their mortgage payments.

Types of Liens: Who Can Put a Lien on Your House?

There are two main types of property liens based on how they are applied: consensual (voluntary) and non-consensual (involuntary). A consensual lien is one you actively agree to, typically when you take out a loan such as a mortgage or a line of credit. It will appear on your credit report but won’t damage your credit score if you keep up the payments. A non-consensual lien is attached to your property without your consent. This occurs when you default on a loan, and local laws are enforced.

Here are some of the most common types of liens by activity, as well as the parties that can enforce them:

• Mortgage lien: These typically start as consensual liens, but failure to make the repayments after 120 days gives the lender the legal right to take possession of your home and sell it to cover their costs. This type of property lien is the most likely to result in foreclosure.
• Property tax lien: Failure to pay your property taxes can result in the state putting a tax lien on your house. They can then force the sale of your home to settle the debt. The same is true for any unpaid income tax.
• Mechanic lien: If you fail to pay a contractor for the work carried out on your property, they can put a mechanic lien on your home. Additionally, if contractors fail to pay a supplier for materials used on your home, you may also receive a lien.
• Judgment lien: This type of lien typically occurs when a creditor wins a lawsuit against a debtor. It entitles them to the required funds from selling the debtor’s home. Other common examples of judgment liens include:
  • Accident and injury lawsuits in which insurance, or a lack of insurance, failed to cover medical or legal bills
  • Homeowner association (HOA) liens due to unpaid fees
  • Parking liens from unpaid parking tickets (generally issued by the county clerk’s office).

How to Find Liens on a Property

Now that you’ve seen the various types of liens you might come across, you’re probably wondering, “is there a lien on my house?”. Since a lien is a matter of public record, carrying out a property lien search or title check isn’t too difficult.

These days, there are various online portals in both the U.S. and Canada that can help, including local public offices, as well as specialized platforms.

An alternative approach is hiring a title company to conduct a title search for you. The fee is typically higher than doing it yourself, but it will save you time and effort.

How to Remove a Property Lien

If your search reveals a house lien on your home, there’s no need to panic immediately. If it’s a consensual lien and you’re up to date with your payments, there’s nothing to worry about. But if you do want to remove a house lien, the easiest way is to simply pay off the associated debt.

If that’s not possible, you may be able to negotiate a partial payoff with the lienholder. In the case of a judgment lien, it’s also possible to file a lien avoidance motion with the Supreme Court. However, bear in mind that this process can take some time to complete.

Buying a Home with a Lien

If you’re looking to buy a home, it’s essential that you have a title check carried out before you finalize the deal. The best practice is to make your offer contingent on the result of a title check.

A title check will reveal any unresolved liens on the property you’re prospecting, and it’s well worth doing. If you purchase a home with liens, you basically take responsibility for paying off the remaining debt. However, if the title check reveals unresolved liens, you can negotiate with the seller to pay them off, reduce the sale price, or you can simply walk away from the deal.

Selling a Home with a Lien

As a seller, it’s essential to know how to find a lien on a property and to do it long before you put your house on the market.

Even if you’re aware of voluntary liens on your home, it’s worth conducting a property lien search, as you might uncover some involuntary liens you weren’t aware of, such as unpaid HOA fees or parking violations, for instance.

Having liens, especially involuntary ones, on your property can negatively impact the sale process:

• The sale takes longer: Lenders may refuse to grant a loan to purchase a home with liens, discouraging potential buyers. You’ll need to pay off the liens before buyers can consider your property.
• Liens lower the sale price: If you can’t pay off the lien, the most common solution is that lien holders are paid off from the sale proceeds, reducing the amount you’re left with.
• Buyers can use liens to negotiate: Experienced buyers know that sellers prefer not to foreclose their homes and can see liens as a sign of financial difficulty. As such, they may make lowball offers in the hopes of a quick sale.

When selling a home with liens, it’s essential to seek professional help from a real estate agent. It is an added cost, but it could save you a lot more in the long run, as well as streamline the entire process.

For an overview of the real estate market in popular cities across Canada and the U.S., visit the links below:

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