A "lien" is a notice that attaches to your property, telling the world that a creditor claims you owe it some money. Liens usually attach to real estate. But they can also attach to personal property in some situations. They're typically part of the public record, filed with a county records office (for real property) or 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.
Based on the legal rule known as "first in time, first in right," liens generally have priority in the order 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 some 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 called "voluntary," which means the homeowner chooses to put the lien on the property.
But not all creditors need consent before getting a lien. Some creditors can get such rights without your permission. These liens, like homeowners' association, property tax, judgment, and mechanic's liens, are called "involuntary" liens.
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, for example, 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 or state law.
However, if your state has a super-lien statute, an HOA lien might be superior to a mortgage lien.
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 might have the opportunity to pay the taxes and costs and get your property back even after the sale.
Because property tax liens are superior to almost all other types of liens, even mortgage liens, if a tax sale happens, both you and the lender could lose your interest in the property. So, if you don't pay the taxes, the lender will usually pay them and add that amount to your mortgage debt.
A "judgment lien" is an involuntary lien created when someone wins a lawsuit against you and, usually, records the judgment against your property.
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 getting 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.
If you fail to pay back taxes after receiving notices, the IRS can place a lien on your property. If you're unemployed, self-employed, or sporadically employed and the IRS would have trouble attaching your wages, the IRS might put a lien on 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 sell real property to pay off a lien through a foreclosure. But they rarely do so except for mortgage and property tax liens.
A creditor typically takes the property subject to a mortgage or tax lien if it forecloses its junior lien. So, 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.