Property liens are legal claims against a piece of real estate owned by someone else. In most cases, liens are the result of debts. If a homeowner owes the US government for failing to pay taxes, for example, the government can place a lien against the homeowner’s property.
Property liens “encumber” a property, which means they create a barrier to selling the property. The homeowner can’t sell their home unless the lien is removed. In some cases, property liens can even lead to foreclosure. If, for example, a homeowner failed to pay their mortgage, the lender could seize possession of the house and sell the house to pay off the debt.
Property liens can be general or specific and voluntary or involuntary. Sound confusing? Don't worry, we'll go over it all. Let’s take a look at the different types of property liens and how they might affect you.
General Liens vs. Specific Liens
General liens apply to all property owned by the debtor. For example, if you fail to pay your federal income taxes, the government could place a lien against everything you own, not just your house.
Specific liens, on the other hand, apply to one specific asset. Mortgage liens, for example, are specific to the house you mortgage. If you were to default on the mortgage for your investment property, the bank could place a lien against that property, but would not be entitled to your primary residence.
Voluntary Liens vs. Involuntary Liens
As the names imply, voluntary liens are liens property owners willingly accept (like a mortgage lien), and involuntary liens are levied against the property owner’s wishes. (like a tax lien).
Different Types of Property Liens
Now that you understand the basics, we can give you a quick overview of different types of property liens.
Mortgage Lien. Mortgage liens are levied for the debt accepted to buy a home. Mortgage liens are specific to the subject property and are voluntary.
Judgment Lien. Judgment liens can be levied by a court when someone fails to repay a debt. Judgment liens are general, and can be either voluntary (if the homeowner chooses to use their property as collateral for the debt) or involuntary (if the court orders the lien against their wishes).
Attachment Lien. An attachment lien is an involuntary lien placed against the property to prevent the owner from selling the property during an ongoing legal matter. Attachment liens can be used to prevent an owner from selling during a divorce or bankruptcy proceeding, for example. Attachment lines are involuntary and can be general or specific.
Estate Tax Lien. When estate taxes are not paid on property that is passed down after death, the government can issue a general, involuntary estate tax lien.
Corporate Franchise Tax Lien. States with a corporate franchise tax charge business owners for the right to operate in the state. Failure to pay this tax can result in a general, involuntary corporate franchise tax lien.
Federal Tax Lien. The federal government can place a general, involuntary federal tax lien against citizens who fail to pay income taxes.
Mechanic’s Lien. If a homeowner fails to pay someone who did renovations or remodeling, the unpaid workers or suppliers can take a specific, involuntary mechanic’s lien against the property.
Vendor’s Lien. A vendor’s lien allows a home seller to repossess the home if the buyer fails to make all payments. This specific, involuntary lien applies to situations where the seller gives the buyer the funding to purchase the home. This type of seller carry-back financing can be used when a buyer is unable to qualify for a traditional mortgage loan.
Vendee’s Lien. A vendee’s lien protects buyers from real estate developers who fail to complete a development that the buyer has purchased. A specific, involuntary vendee’s lien can be placed against the development to keep builders accountable to buyers.
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 the bail bondsman could potentially foreclose on the house if the homeowner fails to appear in court.
Municipal Utility Lien. Failure to pay municipal utilities, like water and electricity, can result in a specific, involuntary municipal utility lien against the property.
Want to Learn More About Real Estate?
Did all this property lien talk get you excited to learn more about the inner workings of the real estate industry? Aceable Real Estate School offers pre-license real estate courses, as well as a growing list of continuing education courses for active real estate professionals. It’s always a good time to learn more about real estate!