What is a Mortgage Lien?
A mortgage lien is another person’s financial claim to your property that lasts until you pay off a debt. It can be voluntary, like a home loan, or involuntary, like a tax lien. If you default on a loan or don’t pay a debt, the lien holder could claim possession of your home and sell it to recoup what you owe.
How can a mortgage lien affect you?
Mortgage liens can affect you differently depending on the type of lien. All types are recorded as official liens against the property title, but involuntary mortgage liens could prevent you from selling the house until the lien is cleared.
Types of involuntary mortgage liens
An involuntary lien is often placed because of accumulated debt. You may need to settle these liens before you can fully exercise your property rights.
Judgement 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 money owed from a lawsuit awarded against you.
Statutory liens: These types of mortgage liens can be issued without your consent — not because a judge approves them, but because they’re authorized by a legal statute. Statutory lien examples can 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 homeowners association (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 that 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.
Types of voluntary mortgage liens
These are liens for which you volunteer your house as collateral. The usual benefits of using your home to secure a loan are increased chances of approval, lower interest rates and a larger loan amount. They typically don’t affect your ability to sell your house or otherwise exercise your rights over your property, but you must repay the loans in full; you run the risk of losing your house if you aren’t able to repay them.
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 order in which the liens were placed.
For example, say you have $20,000 in unpaid taxes, $12,000 left on a home equity loan and a $7,000 mechanic’s lien on top of your $300,000 mortgage, and you sell the house. The proceeds will first go to pay off your taxes, then your mortgage, then your home equity loan and finally the mechanic’s lien. If the funds run out, the entity last in line of lien priority may not receive anything, and you may still owe the debt.
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 could 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.
How to remove a lien on a property
It’s important to take care of any liens before they can turn into a foreclosure. 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 and/or getting a debt consolidation loan or personal loan. If you look into these options, make sure the payment you set up is comfortably affordable, so you’re not trading one financial problem for another.
2. Use the law
Ask the 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 extensively 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 statute of limitations on liens, restricting when a lien can be placed and how long it lasts. The law varies by state and some states, such as California, allow creditors to renew a lien after it expires.
3. File for bankruptcy
If you’re in dire financial straits, you could consider bankruptcy. But this isn’t a choice you should make lightly — you could still lose your home.
Mortgage lien FAQs
Is it bad to have a lien on my property?
It isn’t necessarily bad to have a mortgage lien. Involuntary mortgage liens can affect your ability to sell or refinance your property, however.
What is the purpose of a mortgage lien?
A mortgage lien serves as an assurance that a person will be paid. It gives a person a legal and financial interest in an asset until it’s paid, at which point the lien is released.
Is a mortgage balance a lien?
A mortgage balance is how much you owe on the mortgage loan.
What is the difference between a lien and a mortgage?
A lien gives a person the right to seize and sell your property if you default on a loan. A mortgage allows you to borrow money to purchase or repair your home. Typically a lien is placed on the property in a mortgage agreement.
Can having an involuntary lien damage my credit score?
Yes, an involuntary lien could damage your credit score if the creditor reported nonpayment to the credit bureaus.
Will having a lien prevent me from securing a new loan?
Involuntary liens may prevent you from refinancing your house, selling it or subdividing the property.
How do I remove an involuntary lien?
You can remove an involuntary lien by paying off the debt. A debt counselor can help you figure out how to budget and tackle your balance.
How can I avoid involuntary liens?
The best way to avoid involuntary liens is to keep up with your loan payments and have an emergency fund you can use for cash if something unexpected happens.
Can you have a lien on your house from a previous owner?
It’s rare, but yes. A title search generally reveals any existing mortgage liens, and property typically can’t be sold or bought when it has an involuntary lien on it. Title insurance can protect you from a previous owner’s liens.