Property liens can be a complex topic to grasp, but it's important to understand their implications, especially if you own real estate. Liens are legal claims against a property that someone else owns, typically resulting from unpaid debts. They can create barriers to selling the property and, in some cases, even lead to foreclosure. In this article, we'll explore the different types of property liens and their effects, giving you valuable insights into this intricate subject.
General Liens vs. Specific Liens
To start, let's distinguish between general liens and specific liens. General liens apply to all the assets owned by the debtor. For instance, if you fail to pay your federal income taxes, the government can place a lien against all your possessions, not just your house. On the other hand, specific liens are tied to a particular asset. Mortgage liens, for example, are specific to the house you mortgage. If you default on the mortgage for your investment property, the bank can place a lien against that property, but not your primary residence.
Voluntary Liens vs. Involuntary Liens
As the names suggest, there are voluntary liens and involuntary liens. Voluntary liens are those that property owners willingly accept. A mortgage lien is a classic example of a voluntary lien. On the other hand, involuntary liens are imposed on property owners against their wishes. Tax liens are a common type of involuntary lien that government authorities can levy on a property.
Exploring Different Types of Property Liens
Now that we have grasped the fundamental concepts, let's delve into the various types of property liens you should know about:
1. Mortgage Lien
A mortgage lien is created when you borrow money to purchase a home. It is specific to the property you are buying and is considered a voluntary lien. In case you default on your mortgage, the lender has the right to seize the property and sell it to recover the debt.
2. Judgment Lien
A judgment lien can be imposed by a court when someone fails to repay a debt. It can be both general or specific, depending on the circumstances. A judgment lien can be voluntary if you agree to use your property as collateral for the debt, or involuntary if the court orders the lien against your wishes.
3. Attachment Lien
An attachment lien is an involuntary lien placed on a property to prevent the owner from selling it during an ongoing legal matter. For example, it can be used to prevent a property owner from selling during a divorce or bankruptcy proceeding. Attachment liens can be general or specific, depending on the situation.
4. Estate Tax Lien
When estate taxes go unpaid on a property that has been passed down after someone's death, the government can issue an involuntary estate tax lien. This type of lien is general and affects the entire estate.
5. Corporate Franchise Tax Lien
States that have a corporate franchise tax charge business owners for the right to operate within their jurisdiction. Failure to pay this tax can result in an involuntary corporate franchise tax lien, which is general in nature.
6. Federal Tax Lien
If you fail to pay your income taxes to the federal government, they have the authority to place a general, involuntary federal tax lien against you.
7. Mechanic's Lien
When a homeowner fails to pay contractors, workers, or suppliers for renovations or remodeling work on their property, those unpaid parties can file a specific, involuntary mechanic's lien against the property.
8. Vendor's Lien
A vendor's lien allows a home seller to repossess the property if the buyer fails to make all the necessary payments. This specific, involuntary lien comes into play when the seller provides the funding for the buyer's purchase, often when the buyer cannot qualify for a traditional mortgage loan.
9. Vendee's Lien
A vendee's lien is designed to protect buyers from real estate developers who fail to complete a development that the buyer has already purchased. A specific, involuntary vendee's lien can be placed against the development to hold the builders accountable to the buyers.
10. Bail Bond Lien
If a homeowner needs to post bail, a bail bondsman can take a lien against the owner's property as collateral for the debt. This specific, involuntary lien means that the bondsman could potentially foreclose on the house if the homeowner fails to appear in court.
11. Municipal Utility Lien
Failure to pay municipal utilities, such as water and electricity bills, can result in a specific, involuntary municipal utility lien against the property.
Want to Learn More About Real Estate?
If you're intrigued by the intricacies of property liens and want to dive deeper into the real estate industry, Aceable Real Estate School offers pre-license real estate courses as well as continuing education courses for active real estate professionals. Whether you're a beginner or an industry veteran, expanding your knowledge about real estate is always a worthwhile pursuit.
Remember, understanding the different types of property liens is crucial for any property owner. It ensures that you are well-informed and can navigate the complex realm of real estate with confidence.