When you purchase a home or car on credit, you usually agree to give the lender a lien as part of the transaction. Some types of liens are voluntary, while others are involuntary and created by law, such as property tax liens, mechanic’s liens or homeowner association liens. Liens typically last until a debt is paid off or the property is sold. A lien is not a right to immediate possession, but it can prevent you from selling or refinancing your property until the creditor gets its money.
A mortgage is an example of a voluntary lien, which a lender records to protect its investment in the loaned amount. This type of lien also gives the lender priority if the borrower defaults on the debt. A mortgage is removed when the loan is paid off or the lender files a Satisfaction of Mortgage with the county recorder.
Nonconsensual liens are often involuntary and include liens for unpaid child support, court-ordered restitution or unpaid judgments. These liens can prevent you from selling or refinancing real estate, even if the creditors don’t want to take action against you. Judgment liens are the most common involuntary liens. A judge awards the winner of a lawsuit a claim against all your nonexempt property, which allows it to access your business and personal assets, including your real estate, until the debt is paid off.
Unlike the voluntary liens on your home or car, these liens aren’t removed when you pay off your debt. In fact, some of these liens can hang over your property for years until they are released. This can make it difficult to buy a house or even sell your car until you get your liens resolved.
There are two types of consensual liens on your property: purchase-money security interest liens and nonpurchase-money Country Hills Plates security interest liens. In the case of a purchase-money security interest lien, you put up the property that you are purchasing as collateral for the loan. For example, when you get a home equity line of credit, you put up your house as collateral for the loan proceeds. The loan proceeds are then used for expenses or to purchase other property. Nonpurchase-money security interest liens are generally nonpossessory and involve assets that you already own, such as office equipment or furniture, being put up as collateral for a loan to cover operating expenses.
The most common nonconsensual liens are Mechanic’s liens and HOA liens. These are often created when you hire a contractor or material supplier to work on or improve your home or redevelop your property, and don’t pay them for their services or supplies. They are recorded to put the world on notice that you owe this creditor. If you ever sell your property, a recorded Mechanic’s or HOA lien will prevent the new owner from showing clear title on the deed or title document. In addition, these liens are public, meaning that potential buyers will know about them and likely will not make an offer.