A lien is a notice attached to your property informing everyone that you owe the creditor money. Before you can sell your property and give clear title to the buyer, you must pay off the lien. Liens usually attach to real estate, but they can also attach to personal property in some situations. (To learn more, see What Is a Property Lien?)
Not every creditor can attach a lien to your property. Below are the situations when a creditor can place a lien on your property.
A creditor usually can place a lien on your real estate—and occasionally on personal property—after it sues you and wins a court judgment. This is often called a judgment lien.
To learn more about judgment liens in your particular state, click on Judgment Liens on Property in Your State, and choose your state from the list.
Many creditors have a right to place a lien on your property without filing a lawsuit. Here are examples of other types of property liens:
Usually, a property tax lien takes priority over all other mortgages or liens on the property, even if the property tax lien was placed on the property later. If you do not pay your taxes, to protect its mortgage, the lender will usually pay the taxes and add that to your mortgage debt. If the taxes are not paid, the government can have your property sold to pay the property taxes. The government must follow whatever procedure the state prescribes, and you may have the opportunity to pay the taxes and costs and get your property back even after the “sale.”
If you fail to pay back taxes after receiving notices from the IRS, it may place a lien on all of your property, especially if you’re unemployed, self-employed, or sporadically employed and the IRS would have trouble attaching your wages. Many creditors with property liens simply wait until the house is sold or refinanced to get paid. The IRS, however, doesn’t like to wait and may force a sale if the amount you owe is substantial. For more information on dealing with IRS liens, see Stand Up to the IRS, by Frederick W. Daily (Nolo).
If you owe a lot 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.
If a contractor works on your property or furnishes construction materials to be used on your property, and you don’t pay up, 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 home.
In California, in a marital action a spouse may file a lien against his or her interest in community real estate to secure payment of attorney fees in the action. The lien affects only the filing spouse’s interest in the property. (Cal. Fam. Code § 2033.)
To learn about other ways creditors can collect, see Debt Collection: Repossession, Wage Garnishments, Property Levies, and More.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.