A "lien" is a notice that attaches to your property, telling the world that a creditor claims you owe it some money. A lien is typically a public record. It is generally filed with a county records office (for real property) or with a state agency, such as the secretary of state (boats, mobile homes, office equipment, and the like).
Liens are a common way for creditors to collect what they're owed. When someone puts a lien on your property, that property effectively becomes collateral for the debt. To sell or refinance the property, you must have clear title. A lien on your house, mobile home, car, or other property makes your title unclear. To clear up the title, you must pay off the lien. So, creditors know that putting a lien on property is a cheap and almost guaranteed way of getting what they're owed—sooner or later.
Lien priority determines the order in which creditors get paid in a foreclosure. If a lien has "priority" over another lien, it gets paid before the other lien. Based on the legal rule known as “first in time, first in right,” liens generally have priority in the order that they're recorded.
But as with most legal rules, the "first in time, first in right" rule has exceptions. When it comes to real estate, depending on state law, some liens, such as property tax liens, mechanic’s liens, and homeowners’ association and condominium association assessment liens, get priority over previously recorded liens.
Properties, like residential homes, are often subject to more than one lien. Certain liens, including mortgage liens, are voluntary, which means the homeowner chooses to put the lien on the property. Other liens, however, like homeowners’ association liens, property tax liens, judgment liens, and mechanic’s liens, are involuntary.
If you take out a loan to buy a house, the lender conducts a title search before giving you the loan money to see if the property has clear title. If the property has clear title, you'll likely sign a mortgage or deed of trust (or similar document) to provide security for the debt. The lender will then record the mortgage, which is called a first mortgage, in the public land records to put a lien on the property. If you then take out another loan, like a home equity line of credit, from a different lender, the second lender will record it and get a second lien on the property.
If you don't pay your homeowners' association (HOA) dues, the HOA often automatically gets a lien on your home. HOA liens are typically junior to a first mortgage based on the terms of the Declaration of Covenants, Conditions, and Restrictions. Though, if your state has a super-lien statute, the HOA lien might be superior to the mortgage lien.
Property tax liens are superior to almost all other types of liens, even mortgage liens. So, if you or your loan servicer don't pay the taxes on your home, the property might go to a tax sale. If a tax sale occurs, both you and the lender could lose your interest in the property. Because tax sales eliminate mortgage liens, loan servicers usually pay property taxes when a homeowner doesn't.
A judgment lien is a type of involuntary lien that's created when someone wins a lawsuit against you and records the judgment against your property.
If you hire someone to work on your home, like to install a new roof or complete another kind of major renovation, the contractor could file a mechanic’s lien on the property if you don't pay them for their work. This type of lien is also superior to a first-lien mortgage.
Generally, creditors have the right to have real property sold to pay off a lien, usually through the foreclosure process. But except for mortgage liens and property tax liens, they rarely do so. Mortgages and property tax liens have priority over most other liens. If a creditor forecloses its junior lien, it takes the property subject to the mortgage or tax lien.
Instead of forcing a foreclosure sale, creditors usually wait until the property is sold. Again, buyers usually won’t purchase the property unless the title is clear, meaning it has no liens. So, the seller will use part of the purchase price to pay off any outstanding liens.
If you're worried that a lien has been involuntarily placed on your home, consider talking to a real estate or foreclosure attorney to learn about your rights and options, including ways to potentially settle the debt or fight the lien if it's invalid. A debt settlement lawyer might also be able to help you.