Types of Liens

What is a Lien?

For those who are unfamiliar, a lien is a legal tool creditors use to try and recover money from a debtor. When done properly, a lien can attach to collateral and be used to ensure that the creditor eventually gets the money they are owed by the debtor. Liens can be voluntary, like a mortgage lien, or involuntary like a judgment lien. There are a few different types of liens used to collect.

Key Takeaways

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What Types of Liens Are There?

Judgment Lien- a judgment lien, sometimes referred to as a money judgment lien can be put into place when there is a money judgment entered against you in a court of law. The judgment creditor is free to pursue collection of the money judgment and one way for the creditor to do this is to place a lien on any real property you own within the court’s jurisdiction. Real property is land and buildings. In some states, judgment creditors are also allowed to lean personal property like cars, boats and furniture. Real property with a lien on it cannot be transferred to a new owner without removing the lien via payment of the money judgment owed. In some extreme circumstances, the judgment creditor can move to foreclose on a real property lien. Personal property may simply be taken from the judgment debtor.  

Bank Lien - When you borrow money from a bank they lien the collateral. This is a voluntary lien so you agree to it before it takes place.  

Income or Property Tax Liens - Unpaid income tax or property tax can result in a lien. Sometimes, in the case of income tax the state or federal government will try to levy any accounts that you have if they can locate them, which is the more immediate payoff for unpaid taxes. If there is not enough in the account to levy or they cannot locate the account then they will move on to placing liens on any real property they can. You have to pay the lien if you sell the property or they may choose to foreclose on the lien.  

Mechanics Lien - A mechanics lien is not just for auto work. A mechanics lien can be filed by any contractor or sub-contractor who completed work on a project or real property. Mechanics liens are interesting because they are typically treated with higher priority than most debts. Priority is the term for when and how creditors are paid if someone liquidates or passes away.  

What Can I Do If A Lien Is Filed?

Typically, you are provided notice that a lien is going to be filed. If it is a judgment lien, the order granting the creditor victory should tip you off that a lien is on it’s way. In the matters of a mechanics lien, most states require that proper notice is given to the debtor before the lien is filed. If you receive notice of intent to lien, it would be best if you at least consulted with a real estate attorney in order to see if there is some way to challenge the lien. While the debt may be valid, it is possible that the creditor has not followed proper procedure when filing the lien (for example, improper or nonexistent notice if notice is required for that particular type of lien).

The best approach to dealing with a potential lien is to fight whatever claim the alleged creditor is making. If you can defend against the claim, no lien. An example would be a contractor double charging for materials or failing to complete the work in the contractually agreed upon time, you could try to take them into court over it and ask for the lien to be lifted if you win. If the lien is a judgment lien, ideally you would have been able to at least mitigate any damages and possibly avoid having a lien filed.  

Remember that it is not just the principal that you ultimately would be responsible for in the even of a lien. The judgment creditor could add interest and penalties dependent on different state law. Something that might seem small, like $5000 could easily double ten years later when you are trying to sell your house.  

The advice of an attorney could be invaluable to you at any point in this process. If you think you are being liened improperly or unlawfully then you should at least consult with an attorney in your state to fully advised of your options.