What Is a Lien? Here’s What You Should Know

A lien is a legal claim against your property that gives a creditor the right to seize or take it if you fail to meet an obligation, such as repaying a loan. We’ll cover how liens work, how they affect selling and refinancing, and how to remove a lien so it doesn’t affect you down the road. 

What is a lien?

A property lien gives the lienholder the right to seize and sell a property if its owner fails to meet a contractual obligation or violates a legal requirement. 

When you take out a mortgage, your mortgage lender holds a lien on your house until you repay the debt. If you don't pay your state or federal taxes, the government can put a tax lien on your property until you pay what you owe. 

When you're buying a house, any liens on the property stay with it and can affect the next owner. That’s why a title search to uncover existing liens is required for any sale. 

“If you buy a home with an undiscovered lien on it, you could end up on the hook for someone else's old debt,” says Mazyar M. Hedayat, licensed title agent and Strategic Legal and Real Estate Advisor at Real Estate Bees. 

When you sign a loan agreement using property as collateral and allow the lender to register a lien, you could lose the asset if you fall behind on your payments. You could also inherit a lien if you purchase a property with one attached, since a title change doesn't remove it.

“Homeowners don't actually have to be aware of a lien for it to be a problem,” says Cody Schuiteboer, president and CEO of Best Interest Financial, a mortgage brokerage. “Homeowners who bought their properties without title insurance and later realize there is a lien stemming from the previous owner's unpaid debt face a very challenging financial situation with few affordable solutions.”

How does a lien work?

How a lien works depends on whether the lien is consensual (such as an agreement you enter into voluntarily) or non-consensual (typically resulting from a legal action against the property owner).

• Consensual: Consensual liens usually arise from written contracts, such as a secured loan agreement you sign to give a mortgage lender a security interest in your home. 
• Non-consensual: This type of lien is rooted in statutory or common law, such as laws that allow tax liens for unpaid taxes or that allow contractors to place a lien on a property for unpaid work. They can include judicial liens that arise after a court judgment. 

Some liens arise automatically by law, while others must be filed or recorded with a county recorder, court, or other authority. When a lien is filed against your property, you may receive notice depending on the type of lien and the local requirements.

While a property lien creates a legal right to exercise a security interest in a property, it doesn’t necessarily mean the property will be seized. Making on-time payments, abiding by the terms of contractual agreements, and fulfilling legal obligations can help protect you from a lien being exercised. 

Lienholders may also need to take additional steps to exercise their security interest. A lienholder looking to recover unpaid debt may need to initiate the foreclosure or repossession process. And while a tax lien gives the government the right to take your house for nonpayment of overdue taxes, the government must initiate a tax levy to take and sell it.

Types of liens

The table below shows some of the most common types of property liens, who files them and why, and how they’re removed. 

Mortgage lien

Mortgages are secured debt with the home acting as collateral. A lender's mortgage lien allows it to take legal action to claim the property in the event of default. 

If there are multiple mortgage liens on the home, there is a hierarchy that controls who gets paid first if the home is foreclosed on. The primary mortgage lender has the right to recover the unpaid balance before the junior lienholder (the home equity lender). 

Homeowners association lien

If a property owner is past due on homeowners association or condominium association fees, the HOA can place a lien on the property if the association’s bylaws allow it. The HOA will typically notify the property owner before filing a lien with local authorities. 

Tax lien

When a property owner fails to fulfill their tax obligations, the government can recover the money by levying the property. A tax lien is often the first step in this process. 

Mechanic’s lien

A mechanic’s lien, also called a contractor’s lien or builder’s lien, helps workers recover payment for construction, repair, or maintenance work on a property. Mechanic's liens are involuntary liens allowed by state statutes when property owners don't pay for work performed.

Judgment lien

A judgment lien arises when a creditor or debt collector wins a lawsuit to collect unpaid debt and requests that the court grant a judgment lien to enforce the judgment. If the court grants the request, the creditor or collector then has a legal claim on the property and can pursue additional legal steps to enforce that interest, including forcing a sale. 

Which types of liens affect property ownership?

All liens affect property ownership by restricting what property owners can do with their property. 

“A lien only affects homeowners when they try to do something with the property: Sell it, refinance it, or extract equity from it,” says Schuiteboer. “Liens do not prevent homeowners from residing in the home. They prevent them from capitalizing on or transferring ownership of the property.”

A lien can also affect property ownership when a lienholder seizes a property through foreclosure. 

How can a lien affect a home sale or refinance?

A property lien typically prevents a home sale from closing until the lien is resolved. 

If the buyer is financing the home purchase with a mortgage, the lender will require a title search. If the title search reveals liens on the property, the sale is typically put on hold. If the lien is resolved, the sale can proceed. 

Even if the buyer is paying cash, most buyers won’t want to take on a clouded title, and they can usually cancel the deal when a lien is discovered. 

“Most standard purchase agreements include a marketable title contingency. The seller must be able to deliver a clean, clear title to the buyer,” says Hedayat. “If the title search turns up a lien that the seller can't or won't clear before closing, the buyer typically has the right to walk away and get their earnest money back.”

Occasionally, title searches can miss property liens. That’s why most lenders require title insurance to protect against potential future claims against the property. 

How do you remove a lien?

To remove a lien from a property, you can try options including:

• Pay the debt: Contact the lienholder, and either pay the amount owed or negotiate to settle the debt for less than you owe. The lienholder will need to sign and record a lien release letter to release the lien. 
• Challenge the lien in court: You can also request a court order to remove the lien if you think it’s invalid. “If the lien was filed improperly — wrong legal description, filed after the deadline, no proper notice given — you can go to court and ask a Judge to void it,” says Hedayat.
• Bond around the lien: If you need to clear the title to your home, you can potentially attach it to a surety bond. The lien doesn’t disappear, but the lienholder is guaranteed repayment by an insurance company, and the title remains free and clear for transfer. 
• Wait for the lien's statute of limitations to expire: This strategy could leave you in limbo for a long time. Depending on the type of lien and the applicable state and municipal laws, it could be years or decades before the statute of limitations on a lien runs out. Consult an attorney before you consider this option so that you know the risks and downsides.

Keep in mind, some liens are more complex than others, and the removal process isn’t always straightforward. “For anything involving a dispute or an unclear lien origin, especially when the former owner of a property has passed away and you need an heirship affidavit drawn up, it is best to call a real estate lawyer,” Schuiteboer says.