What Is a Mortgage Lien and How Does It Affect Your Home?

November 28, 2023 - 7 min read

If you’re a homeowner with a mortgage, you’re likely familiar with the concept of a lien. Mortgage liens represent a legal interest in a property, indicating that your lender holds a rightful claim to your home.

However, other types of liens can affect your real estate, too.

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What is a lien?

A lien is a legal claim placed on a property or asset by a creditor to secure a debt or obligation. It essentially means that someone has a financial interest in your property until you’ve satisfied a debt.

Liens aren’t limited to real estate, though. Creditors can also attach these to personal property, such as vehicles and financial accounts.

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How does a lien work?

Liens are a way for creditors to guarantee repayment for money they lend.

Let’s say you decide to buy a home and need a mortgage to do so. In this scenario, the lender provides funding to purchase the property, and in return, they place a lien on the house.

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This lien acts as collateral. If you don’t make your mortgage payment, the lender can take legal action to recover their money by selling the property.

Another common example is financing a car purchase. The auto lender puts a lien on the car’s title, giving them a legal right to repossess the vehicle if you default on the payments.

Additionally, contractors who perform work can place a lien on your property if they’re not paid for their services.

Consider a scenario where a contractor places a lien on your property due to an unpaid bill for $10,000. Once you eventually sell the home, the contractor is then entitled to receive payment directly from the proceeds.

The different types of liens

In real estate, various types of liens wield influence over both home buyers and sellers, each with its own implications. Here are some of the most common liens:

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General liens

General liens are attached to all types of property, both real estate and personal. A common example is a tax lien for unpaid income taxes. If you owe the government back taxes, they can place a general lien on all your assets until you’ve settled the debt.

Specific liens

Specific liens, on the other hand, are tied to a particular property or asset. A mortgage lien is one example. It specifically targets the property you bought with borrowed funds.

Voluntary liens

Voluntary liens are created intentionally by a property owner. If you take out a mortgage or use your home as collateral for a home equity loan, you’re willingly placing a voluntary lien on your property to secure the loan.

Involuntary liens

Involuntary liens are placed on your property without your consent, typically due to unpaid debts. For example, if you fall behind on your property taxes, your local government can place an involuntary tax lien on your home.

Judgment liens

Judgment liens are issued by a court. They occur when you lose a lawsuit and you’re ordered to pay a monetary judgment. The winning party can file a judgment lien against your property to ensure they receive payment.

Tax liens

Tax liens occur when you don’t pay taxes owed to the government, such as property or income taxes. These liens can also affect your ability to sell or refinance your property.

Homeowners association (HOA) liens

If you’re part of a homeowners association and fall behind on monthly fees, the HOA can place a lien on your property.

Mechanic’s liens

Mechanic’s liens are typically placed by contractors, subcontractors, or suppliers who haven’t been paid for work or materials. These liens give them legal claim to your property until you pay what’s owed.

Getting rid of a lien

Having a lien on your home can make it difficult to sell or refinance. This is because a mortgage lender won’t approve a loan when a property carries an outstanding lien.

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Lenders discover liens through a title search, which is an important step in the mortgage approval process. Title companies or real estate attorneys look through public records to identify any outstanding liens that might affect the property’s title, such as tax liens, mechanic’s liens, or judgments.

If a lien is found, you must address it before the lender can proceed with the mortgage.

The most straightforward way to remove a lien is to satisfy the debt. For example, you can remove a tax lien by paying what you owe, including any penalties and interest.

Similarly, if you have a mortgage lien, your lender will release the lien from your property title once you’ve paid off the mortgage balance.

In other cases, though, you might be able to negotiate with a creditor to release a lien. This often requires agreeing to a payment plan or a debt settlement.

If you believe a creditor (or anyone) unjustly placed a lien on your property, you can contest it in court. Additionally, you can wait for liens to expire. They typically have expiration dates, where they no longer affect your property.

The bottom line

A lien is a legal claim to a property or asset, and they come in various forms: general, specific, voluntary, involuntary, judgment, tax, and mechanic’s.

It’s important to understand the type of liens on your property and promptly address these (paying the debt, negotiating with creditors, taking legal action, etc). Failure to do so can affect your ability to sell or refinance the property.

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Mortgage lien FAQ

What is the purpose of a mortgage lien?

When you take out a mortgage, a lien is placed on your property, giving the lender a legal claim to the property if you default on the loan. It acts as security for the lender, ensuring they can recover their funds through the property if you can’t make payments.

Can you sell a home with a lien on it?

Selling a home with a lien is possible, but it’s challenging. The lien needs to be addressed during the sale process. Typically, the proceeds from the sale are used to pay off the lien before transferring clear ownership to the buyer.

How long does a lien stay on your property?

A lien can remain on your property until the debt it represents is fully paid off or resolved. However, the exact duration can vary based on the type of lien and local laws.

How can I remove a lien from my house?

You can remove a lien by satisfying the debt it represents. This could involve paying off the owed amount in full or negotiating with the creditor to release the lien after reaching a settlement or payment arrangement.

Does a property lien affect your credit score?

Property liens can significantly impact your credit score negatively. They indicate financial obligations and can lead to decreased creditworthiness, making it harder to secure loans or credit in the future. Resolving the lien can improve your credit score over time.

Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree in finance from DePaul University. She is also a licensed real estate agent in Arizona and a member of the National Association of Realtors (NAR).