What is a Lien? (with photos)

It is important to review publicly registered documents such as these to make sure that a property does not have a lien on it.

A lien is a lawsuit or “hold” on some type of property, whether personal or real estate, becoming a security against money or services owed to another person or entity. Liens generally exist in situations such as second mortgages, loans against vehicle titles, or money borrowed against any other substantial items owned by borrowers. Such a claim may prevent the borrower from selling the property, or at least prevent him from transferring title to the property until the debt or obligation is satisfied. In some cases, a person or entity to whom money or services are owed may use legal means to place a lien on the debtor’s property or part of it.

Procedure

Plumbers, electricians and other contractors can place construction liens against the property if not paid in full.

Sometimes property that carries a lien can be forced up for sale by the lender to collect what is owed if the loan is in default. If the borrower decides to sell the property, the collateral holder must be paid before the title is released for transfer to the buyer. In some cases, the creditor can take possession of the property until the debt or obligation is satisfied, but cannot sell it.

Placing and removing encumbrances

Liens may be agreed upon by debtors or may be imposed on debtors by legal means. To place a lien on a property, the person or entity that is to receive money or services normally must go through the appropriate government office and pay a fee. The debtor can usually remove the collateral by paying off the original debt, repaying the fee that was charged when the collateral was placed, and paying an additional fee to remove it.

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Types of Encumbrance

There are different types of encumbrances, and some of the most common are mechanical encumbrances, also known as construction encumbrances. These guarantees are put in place when homeowners owe money for materials or labor that have improved their property in some way. This can include repairs, maintenance and new construction, as well as things like landscaping and renovation.

Other common types of encumbrances include maritime encumbrances on boats and other vessels; agriculture encumbrance on agricultural equipment; and tax liens imposed by governments because of unpaid taxes. Liens may also be imposed by landlords, warehouse or hotel owners for unpaid rent or fees. Hospitals, healthcare providers, insurance companies and other service providers may also impose liens to collect unpaid fees.

Buyer Beware

When purchasing a property, it is important for the buyer to make sure that there is no encumbrance that could prevent him from obtaining a clear title to the property. This is accomplished by conducting – or hiring a company to conduct – a title search or “title summary”. This simply means developing and examining a collection of publicly recorded documents about the history of the property.

Title Search

A title search will usually indicate whether a lien exists and whether the seller is the legally recognized owner. It must also state the exact legal description of the property and provide details of a lien or other encumbrances against the title. This is especially important if creative financing techniques are being used to purchase the property, such as owner financing or a land contract. Otherwise, after paying the agreed-upon price, the buyer may find that he still does not have the property free and clear.

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