For the most part, whether you define a lien as a "property lien" or a "judgment lien" depends primarily on how the creditor got the lien. Creditors typically acquire property liens through your voluntary consent. On the other hand, creditors get judgment liens as a result of a lawsuit against you for a debt that you owe.
When you take out a loan to buy a house, for example, you sign a contract (called a "promissory note") promising to repay that debt. Because the amount of money you borrow is so large, the creditor requires something to help minimize the financial risk it takes when it lends you this money. The creditor accomplishes this by making the offer to finance the property's purchase conditional on you giving it a lien on that property.
To provide the creditor with a lien, most borrowers sign a mortgage or deed of trust. Once the creditor has a lien and you default on the terms of the agreement—for example, you don't make the mortgage payments—the creditor may take action to foreclose on the property you pledged as a security interest.
State law typically requires the creditor to "perfect" the property lien by recording it, usually in the county records. The purpose behind this recording requirement is twofold: it gives other parties of interest notice of the lien, and it establishes a catalog of liens in case a party contests a lien’s validity. The creditor must remove the lien once you pay the corresponding debt in full.
A creditor obtains a judgment lien by winning a lawsuit against you. While creditors have numerous options to collect on a debt, creditors often use judgment liens as the primary way to ensure you actually pay the debt off. The creditor first obtains a judgment against you. The creditor then usually records the lien in the county where you or the property resides and attaches the judgment as proof of the creditor’s entitlement to the lien.
Generally, you'll need to get the lien removed or released before you can sell or transfer the property.
Here are some ways to remove a lien from your property.
If you pay off the underlying debt, the creditor will agree to release the lien. The creditor then files this release with the same authority with which it recorded the original lien. Once the creditor releases the lien, you may sell, trade, or otherwise transfer the property as you please.
If a creditor puts a lien on your property, you may make an offer to settle the amount for less than you owe. As part of the negotiations, get the creditor to agree to release the lien. If you need help in the negotiations, consider hiring a debt settlement lawyer to help you.
Most states provide a process by which you can ask the court to remove a judgment lien. But whether the court will approve your request depends on the nature of the property burdened by the lien. If you think the creditor got the lien through fraud, bad faith, coercion, or other wrongful means, you might be able to win a lawsuit against the lienor. If you win the case, the court can order that the lien be stricken from the property records.
You can also ask a court to remove a lien if the debt is valid, but the lienor didn’t follow proper legal procedures when filing the lien.
If a specific amount of time passes, the lien will expire. The statute of limitations for a lien varies depending on the type of lien and state law. But be aware that state law often gives lienors the option to renew their lien.
By filing for bankruptcy, you can use federal law to remove a judgment lien in bankruptcy court. Unless you have other debts that necessitate filing bankruptcy, though, you should only use this option as a last resort. For more information about removing liens through bankruptcy, visit our Getting Rid of Liens in Chapter 7 Bankruptcy area and consider talking to a bankruptcy attorney.