A lien attached to your property puts others on notice that you owe the creditor money. Before you can sell your property and give clear title to a buyer, you must pay off the lien. Liens usually attach to real estate, but they can also attach to personal property in some situations.
Not every creditor can immediately attach a lien to your property. Although some have lien rights by law, others must first go through the court system. Below are the situations when a creditor can place a lien on your property.
Creditors, such as a mortgage or car lender, can ask borrowers to put up the purchased property as collateral as part of the condition of the loan. Considered a voluntary lien, this type of lien allows the lender to foreclose on the real estate or repossess the vehicle if the borrower fails to make timely payments or breaches (breaks) some other condition.
Not all creditors need a borrower’s consent before getting a lien, however. Some creditors can obtain such rights without your permission. These liens are known as “involuntary liens.”
(If you’d like to learn about what happens when there are multiple liens on the same piece of property, read What Is Lien Priority?)
Some creditors have the right to attach your property by law. Others can win lien rights in court. Here are some examples of involuntary liens.
Most unsecured creditors, such as the holders of credit card debt, medical bills, and personal loans, must first file a lawsuit, win the action, and get a money judgment before obtaining lien rights. With the judgment in hand, a judgment creditor can place a judgment lien on your real estate and occasionally on personal property depending on the state in which you live.
Many creditors have a right to place a lien on your property without filing a lawsuit.
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 after the other liens. 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 don’t pay your taxes, to protect its mortgage, the lender will usually pay the taxes and add that to your mortgage debt.
If you fail to pay back taxes after receiving notices, the IRS can place a lien on all of your property. If you’re unemployed, self-employed, or sporadically employed and the IRS would have trouble attaching your wages, the IRS might consider this the first line of defense. A creditor with a property lien is in the favorable position of waiting until the owner sells or refinances the house—then they’ll get paid automatically. Because the IRS doesn’t like to wait, it might 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 Erica Pless and Frederick W. Daily (Nolo).
If you owe a lot in child support or alimony, the recipient can 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.
When you hire a contractor to perform a service, such as a home improvement project, and you fail to pay the bill, you might find yourself with a lien filed against the property that will likely be satisfied when the home is sold. In most states, the contractor must record the lien within one to six months of not being 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 a California marital action, a spouse can file a lien a community real estate interest 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.)
Find additional details in How Creditors Collect Debts: Repossession, Wage Garnishment, Bank Attachment, and More.