Property Lien: Definition, Types, and How To Avoid Them

Learn How Property Liens Work and How They Affect Homeowners

When you own a home, it's possible for other parties to have a legal claim against your property if you owe them a debt. This is known as a lien. While some liens are expected, others can come as a surprise and create challenges for a homeowner (especially when buying or selling a home).

In this guide, we'll explain how property liens work, the most common types, and what you should know about avoiding or resolving them so you can protect your home.

What Is a Lien on a House?

Liens are a type of encumbrance that give creditors the legal right to take ownership of a home under certain circumstances.

A home lien is a legal claim on a house used to ensure payment of a debt. For example, the government may place a lien on a house if the homeowner fails to pay their property taxes for an extended period. Banks and other lenders place liens on houses when they lend money for mortgages.

Liens can make it difficult to sell a home. Lenders won't approve mortgages to buy homes that have unresolved liens against them. Instead, lenders typically require the liens to be removed first. Buyers are also typically reluctant to purchase homes with liens because they become responsible for paying the debt once they become the new owner.

How Does a Lien Work?

A lien is placed on a house when a homeowner assumes a property-related debt or fails to pay a home-related obligation. Some liens are agreed to upfront, while others may be placed without your consent. Once a lien is filed, it's recorded in public records and becomes attached to the property itself. The lien must be released before the home can sell or be refinanced.

Liens are classified as either voluntary or involuntary, and specific or general. Here's how they differ:

Voluntary vs. Involuntary Liens

You agree to voluntary liens, usually when borrowing money, such as a mortgage loan. Examples of voluntary liens may include a mortgage, a home equity loan or line of credit, an auto loan lien (on your automobile), and sometimes (though rarely) a mechanic's (business or personal) lien if you fail to fulfill the terms of a contract you signed (and your home was agreed upon as collateral).

Involuntary liens are placed without consent and often result from unpaid taxes, federal tax liens, court-ordered judgments, or contractor disputes. Tax liens, judgment liens, HOA liens, and, oftentimes, mechanic's liens on your vehicle are considered involuntary.

Specific vs. General Liens

Specific liens apply to a particular asset, such as a home or a vehicle. Examples of specific liens include a mortgage lien, a property tax lien, an auto loan lien, and a mechanic's lien. In all of these cases, the lien applies to one asset, such as the home or vehicle being financed.

General liens apply to multiple assets and are commonly associated with court judgments. Examples of general liens are judgment liens, IRS tax liens, and state tax liens. Instead of attaching to a single property, they can affect multiple debtor-owned assets.

Types of Liens

There are a few common types of liens:

• Real estate lien: A real estate lien gives lenders the legal right to seize or sell a property if a contract isn't fulfilled, such as in a mortgage. The lender has a legal claim to the property until the mortgage is paid in full, the lien is released, and full lien-free ownership falls to the homeowner.
• Tax lien: A tax lien may be placed on a home when property taxes or other tax obligations go unpaid. Federal, state, or local government agencies can file tax liens, which limit a homeowner's ability to sell or refinance the property. If left unresolved, tax liens may lead to additional collection actions, including foreclosure.
• Mechanic's lien: A mechanic's lien, sometimes called a contractor lien, can occur when a homeowner doesn't pay for repairs, renovations, or improvements performed on the property. These liens are often tied directly to the work completed on the home.
• Judgment liens: A judgment lien may arise from a court ruling against a homeowner for unpaid debts, such as credit card or personal loan balances. If the court awards a judgment and the debt remains unpaid, the creditor may be able to place a lien on your property.

What Happens When a Lien Is Placed on Your Home?

When a lien is placed on your home, it can limit what you're able to do with the property until the debt is resolved. While you may continue living in the home, the lien creates a legal claim that can affect important financial decisions.

One of the most immediate effects is your ability to sell or refinance. Most liens must be paid or otherwise addressed before a sale can close or a new mortgage can be approved. This can delay transactions or require homeowners to use sale proceeds or other funds to satisfy the debt.

A lien can also affect your access to home equity. Borrowing against your home, such as through refinancing or a home equity loan, may be more difficult or unavailable while a lien is in place. Unresolved liens and missed payments can also increase the risk of mortgage default and foreclosure, which may lead to more serious financial challenges.

Who Can Put a Lien on Your House?

Different parties may be legally allowed to place a lien on a home, depending on the situation and the type of debt involved. Referred to as the lien holder, they have a legal claim to your property until a debt is paid or resolved. Some common examples of lienholders include:

• Mortgage lenders: When you take out a home loan, the lender places a lien on the property until the mortgage is paid in full.
• Federal, state, and local governments: Government agencies can place liens for unpaid property taxes, income taxes, or other tax-related debts.
• Contractors and service providers: Contractors may file a lien if they aren't paid for repairs or renovations they performed on a home.
• Courts: A court may place a lien on a property after a legal judgment if you fail to pay what's owed.

While not all liens can be prevented, you can reduce the risk of an involuntary lien. Pay your mortgage and taxes on time, use written contracts, review bills and notices promptly, and check property records when needed.

Property Lien Example

You receive a notice from your local tax office showing you owe property taxes from the previous year. The debt goes unaddressed, and the government places a lien against your property. Later, you want to refinance for a lower mortgage payment but can't because the lender discovers a tax lien on the property during a title search.

Because the lien must be resolved before selling or refinancing the property, you're required to pay the outstanding tax balance in full for the tax lien to be released and for the loan to close.

How To Find Liens On Your Property

Liens are typically identified through public records and professional searches tied to real estate transactions. Whether you're buying a home or checking your own property, there are a few common ways to find them:

• Title search: A title search reviews public records to identify liens or other claims on a property and is commonly performed during the buying, selling, or refinancing of a property.
• County or local records: Liens are often recorded with a county recorder, clerk, or assessor's office and may be searchable online or in person.
• Real estate or legal professionals: Real estate agents, title companies, and attorneys can help identify and explain liens before a transaction moves forward.

Buying a House With a Lien

A lien can complicate the homebuying process, but it doesn't always prevent a sale. Liens are typically identified during a title search, and most must be resolved before ownership can transfer to a buyer. In many cases, the seller uses the sale proceeds to pay off the lien at closing, and the buyer receives a clear title. If the lien isn't addressed, the transaction may be delayed or require additional negotiations between the buyer and seller.

How Do You Remove a Lien on a House?

When a lien on a home is valid, the simplest way to remove it is to pay off the debt associated with it. You'll want to get a Release of Lien from the creditor and file it with your county government to ensure that the lien has been legally removed from your home. It's also possible to remove liens by negotiating with the creditor or by filing for bankruptcy.

When a lien is invalid, you can ask a court to remove it. Invalid liens can result from a creditor's error or an illegal act, such as fraud. You'll probably need to hire a real estate attorney to help you work with the court to get an invalid lien removed.

Property Lien FAQs

Here are answers to some of the most common questions homeowners ask about liens:

Can You Refinance With a Lien on Your Home?

Refinancing may be possible if the lien is resolved before the new loan closes, for example, by paying it off or using the refinancing proceeds to satisfy the debt. In most cases, lenders won't approve a refinance while an unresolved lien is in place.

Does a Lien on a House Affect Your Credit?

A lien doesn't always appear on your credit report, but the unpaid debt that led to the lien may affect it. Missed payments, collections, or court judgments associated with a lien can have a negative impact on your credit score.

Do Property Liens Expire or Go Away on Their Own?

Some liens may expire after a certain period, depending on state law and the type of lien. Others remain in place until the debt is paid or formally released, so it's important not to assume a lien will disappear on its own.

Can a Lien Prevent You From Selling Your Home?

In many cases, yes. Most liens must be resolved before a home sale can close, which may require paying them off using sale proceeds or other funds.

Final Thoughts: What Liens Mean for Homeowners

Property liens can be complicated, especially when they affect your ability to sell or refinance your home. While some liens are a normal part of homeownership, others may require quick attention to avoid delays or unexpected costs.

If a lien is preventing you from refinancing or accessing your home's equity, learning more about mortgage refinancing options can help you understand what steps may be available once the lien is resolved.