What Is A Mortgage Lien?

What Is A Mortgage Lien?

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Artazum/Shutterstock October 17, 2022 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Dima Williams is a contributing writer for Bankrate. Dima writes about mortgages and real estate. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Bankrate logo

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What is a mortgage lien

A mortgage lien is a financial claim to your property, which serves as collateral — or real security — for your mortgage. This means that if you default, or stop making payments, on your mortgage, the lien permits the lender to take possession of and sell your home in order to recoup the outstanding debt. Although they sound negative, mortgage liens make homeownership possible for many people. As long as you pay your mortgage on time each month, the lien doesn’t preclude you from or .

Types of property liens

Other property liens, however, can spell adversity, especially when they are involuntary. Unlike mortgage liens, which the homeowner agrees to by taking out the loan, involuntary liens can happen unwillingly, often because of accumulated debt. When an involuntary lien is placed on your home, the , which can prevent you from selling the house until the lien is addressed. There are several common involuntary property liens: Property tax lien – Your state or local government can issue a property tax lien for unpaid . Federal tax lien – The IRS can place a lien on your property due to failure to pay your federal taxes. This lien can cover your personal property as well as other real estate assets, any vehicles and financial holdings. Homeowners association (HOA) lien – In most jurisdictions, HOAs wield the power to place a lien on your home if you do not pay your . Mechanic’s lien – Contractors can place a lien on your home if you do not pay them for work they’ve done on your property. Judgment lien – In the event you lose a lawsuit, the plaintiff could file a judgment lien until you pay the money the court awarded to the plaintiff. Collectors of credit card debt, outstanding medical bills or personal loans might also secure a judgment lien against your property. Aside from voluntary or involuntary, liens can also be specific or general. The former attach to a certain property, often the homeowner’s primary residence. The latter can apply to several properties or to other assets such as cars, bank accounts and investment portfolios. A common example of a general lien is an .

How do I remove an involuntary lien

The best ways to avoid involuntary liens include: Staying current on all payments due or paying off the debt in full Regularly monitoring your credit to ensure that no delinquencies have been added that could turn into a lien at a later date Requesting a payment plan from the tax authority or the lender if you’re having trouble making payments Disputing it with the issuer if it’s an erroneous lien Hiring a lawyer — “if the potential lien is due to a dispute with a contractor, mediation or legal action may be required to prevent or remove the lien,” says Mike Tassone, co-founder and COO of the mortgage platform Own Up. Filing for, which automatically erases some liens, such as second mortgages (this should be an absolute last resort, however)

What is lien priority

The priority of the liens on a property, sometimes called lien positioning, identifies which debt will be repaid first in the event of default and . “Generally speaking, the lien recorded first in the land records will have higher priority than the later-recorded liens,” says Leslie Tayne, founder of New York-based Tayne Law Group. “When the highest-priority lien is paid following home sale proceeds, the excess amount will go towards the second lien, and so on, until there isn’t money left.” However, money owed to the government often takes precedence when it comes to repayment, so federal and property tax liens trump the “first in time, first in right” rule. Let’s say you have a $200,000 mortgage. Five years after purchasing your home, you take out a second mortgage in the amount of $40,000. Two months after you take out the second loan, a contractor places a $10,000 mechanic’s lien on the property for unpaid renovations. Then, a year later, a property tax lien is levied for $2,000. Suppose you then sell your home for $250,000. In this scenario, the property tax lien must be paid back first with the proceeds of the sale, followed by the balance of the first mortgage and then the balance of the second loan. The contractor will be paid last, and, because of lien priority and the outcome of the sale, might not receive anything at all.

FAQs about mortgage liens


Is it bad to have a lien on my property
Not all liens are bad. A voluntary mortgage lien, for example, indicates a steady record of paying down your home loan, which can help boost your credit and build wealth over time.“Consensual liens are those that borrowers voluntarily consent to, such as a mortgage,” says Tayne. “As long as the borrower stays current with monthly payments, they retain control over the property and ownership. However, some liens are bad to have on your property, such as statutory liens like mechanic’s liens and tax liens and judgment liens.”
Can having an involuntary lien damage my credit score
Up until about three years ago, an involuntary lien could damage your credit score. In 2017, the three credit bureaus (Equifax, Experian and TransUnion) agreed to drop tax and judgment liens from their credit reports. The decision reflected the fact that because various parties can place liens, they are often inaccurate or incomplete.
Will having a lien prevent me from securing a new loan
Your ability to secure a new loan or sell your home can sometimes be affected if there’s an involuntary lien on your home. To check for an involuntary lien, you can contact your county’s assessor, clerk or recorder, or search the online lien databases some jurisdictions maintain. Title companies also carry out a lien investigation when they conduct a .”“Depending on the type of a lien, it may impact your ability to secure a new loan. This is often loan program- or lender-specific,” says Tassone. “Fannie Mae, for example, requires all liens and judgments to be paid off prior to closing on a new loan, while the FHA is more forgiving.” {
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