What Is a Mortgage Lien?

A mortgage lien is another person or company’s financial claim to your property that lasts until you pay off a debt. A home loan is an example of a lien that you enter into voluntarily, though not all liens require your consent.

If you default on a home loan or don’t pay a debt, a lien-holder could claim possession of your home and sell it to recoup what you owe. Knowing how liens work can help you avoid getting into sticky situations that could end in foreclosure.

Is a mortgage a lien?

Although a mortgage is commonly understood to be a secured loan used to buy a home, it’s a little more complicated than that. Technically, a mortgage is a contract that creates a lien. The lien is what links the home to the loan as collateral, giving the lender the right to foreclose if the loan isn’t repaid.

If that seems confusing, it can help to think of the mortgage process as a package of several legal and financial instruments:

How can a lien affect you?

Liens affect you differently depending on whether they’re involuntary or voluntary.

• Involuntary liens, such as tax liens, could prevent you from refinancing or selling the house. They can also cause you to lose the property altogether, if the debt can only be satisfied through selling the home.
• Voluntary liens, such as mortgage liens, typically don’t affect your ability to sell your house or otherwise exercise your rights over your property. But if you don’t repay the loan in full, you run the risk of losing your property.

Since liens are attached to the property — not the person who borrowed the money originally — they can stick around longer than you might think. For example, liens can continue to cause problems even after the debtor has declared bankruptcy or transferred the property to someone else.

How to research liens on a property

The most surefire way to discover any mortgage liens is to hire a title company to perform a title search. You can also visit the local government office — online or in person — where the property is located. Search the property by its address and the owner’s full name. Depending on the location, you may be working with the office of the county or municipal clerk, recorder or assessor.

If you purchase a property with liens, you could end up inheriting the debts — such as unpaid homeowners association (HOA) dues or property taxes — of the previous homeowner. In a worst case scenario, your right to own the home could even come into question.

Types of liens in real estate

Voluntary mortgage liens

Voluntary mortgage liens come into existence through legal agreements, like mortgage contracts. These liens are actually helpful to both borrowers and lenders, since they help create a situation where everyone has skin in the game. The borrower can get the loan they want because the lender knows the money they’re putting on the line can be recouped by enforcing the mortgage lien.

Common types of voluntary mortgage liens include

• First mortgages. These are most often traditional home loans used to purchase or refinance a home, though some niche products — such as reverse mortgages — also fall under the category of first mortgages.
• Second mortgages. These are loans secured by the home’s equity. Legally, they stand second in line to be repaid. We’ll cover details about the order in which leans must be repaid later.
  • Home equity loans
  • Home equity lines of credit (HELOCs)

Involuntary mortgage liens

An involuntary lien is often created because of debt that has gone unpaid. As mentioned above, you may need to settle these liens before you can fully exercise your property rights.

Common types of involuntary mortgage liens include:

• Judgment liens: A judge may issue a lien on your house if the court decides you owe a debt and you can’t pay it outright. Reasons for the debt can include child support, alimony, medical debt, credit card debt and an award owed from a lawsuit judgment against you.
• Statutory liens: These types of mortgage liens don’t require the approval of a judge, because they’re authorized by a legal statute. Statutory liens may include:→ Tax liens: The Internal Revenue Service (IRS) may put a tax lien on your house if you don’t pay your taxes.
  → Homeowners association liens: Your HOA can establish a mortgage lien if you fail to pay your annual or monthly dues.
  → Mechanic liens: If you don’t pay for the labor and products a mechanic uses to repair or upgrade your house, they can put a lien against your home. Subtypes of mechanic liens include solar, heating, roofing, plumbing and HVAC liens.

What is lien priority?

Lien priority determines which debt will be repaid first if the property is repossessed and sold. Tax liens, if there are any, get first priority. The remaining liens are typically addressed in the order in which the liens were placed, though some categories of loans — HOA liens often fall into this group — may get to jump ahead in line.

 Beware: If the funds run out, the entity last in order of lien priority may not receive anything, and you may still owe the debt.

How to remove a lien on a property

To remove a mortgage lien, you typically need to do one of three things:

1. Satisfy the debt owed

If you can’t pay off the debt all at once, talk to the lender to set up a payment plan. If you already have a payment plan and are struggling to make the payments — or if the business won’t accept a payment plan — consider negotiating a partial payoff. Finally, you may want to consider a debt consolidation loan or personal loan.

Need help paying off debt? The National Foundation for Credit Counseling (NFCC) is a non-profit organization that can help you establish a game plan to budget and pay down debt.

2. Use the law

→ Ask a court to remove the lien.

Here are three reasons you could use to request a mortgage lien removal in court. In all of them, you may have to prove your case with receipts and records.

• You already paid the debt. There could have been a paperwork mix-up that resulted in your payment not being recorded or someone else’s debt being attributed to you.
• The lender didn’t follow proper procedure. The lender may not have followed proper protocol, such as notifying you of the debt before taking it to court.
• The lender used wrongful means. If the lienholder practiced fraud, coercion or bad faith, the court may remove a judgment lien.

→ Run out the clock.

Some states place statutes of limitations on liens, which limit how long they last. If you can wait it out, you may be free of a troublesome lien. However, the law varies by state and some, such as California, allow creditors to renew a lien after it expires.

3. File for bankruptcy

If you’re in dire financial straits, you may want to consider bankruptcy. Just keep in mind that not all liens can be avoided through bankruptcy, especially when it comes to mortgage liens you voluntarily entered. Typically, you’re not going to be able to get rid of these using bankruptcy. However, you may be able to avoid judgment liens that are attached to your home.

That doesn’t mean you absolutely won’t be able to keep your home if you declare bankruptcy; ultimately, this will be determined by the details of your financial situation, bankruptcy type and state law.

How much does it cost to remove a lien on a property?

The cost to remove a lien varies widely, and depends on many factors including whether:

• The lien is automatically released (for example, after you’ve repaid the debt), or must go through a removal process that involves filing fees
• Your state’s tax lien code requires you to pay taxes on the lien
• You need to pay additional fees because the lien was attached to a mortgage

If you’re facing foreclosure, reaching out to a foreclosure attorney can help you understand your situation and how much it’s likely to cost you.