When an individual or entity is delinquent on a debt, their creditor may determine that filing for a property lien is the safest way to ensure that they will be able to recover the money that the debtor owes. Filing for a property lien gives the creditor a legal claim over the property of the debtor – essentially using the debtors' property as collateral for the debt. Once a lien is properly filed and recorded, the property upon which the lien is attached cannot be sold until the underlying debt of the lien is satisfied.
Property liens can be filed by virtually any creditor provided the lien is approved and attached to the property. Property liens are frequently used by the IRS when individuals fail to pay their taxes, as well as private creditors who have been unsuccessful in obtaining payment from a delinquent borrower. Essentially, any creditor (individual, private business, commercial enterprise or government agency) that is owed money can theoretically file for a property lien, pending the approval of the court in the county within which the property is located.
A property lien is filed when all other options have been explored and exhausted by the creditor. Since the process for obtaining a lien can be time consuming and involve costly attorney and court fees, creditors tend to explore all other options before resorting to filing a lien. For instance, when a debtor makes it clear that they are either unable to pay or unwilling to address the issue to pay the debt on their home in a commercially reasonable way, the creditor files a lien on the house to ensure payment at some point in the future. A property lien acts as a form of collateral, providing protection to the creditor when all other options proved ineffective for recovering the debt from the borrower.
In order to obtain a lien on a piece of property, the creditor must file the proper documents in the county where the debtor and property are located. While the laws of every state vary, the general procedure is that the creditor must obtain a judgment in their favour in order to attach to the property. Once a judgment is obtained, the lien must be registered with the land records office to be recorded onto the deed of the property. Once recorded on the deed, the information is available to the public and to future prospective creditors.
When a property lien is filed against you, there is no way to sell your home or transfer the assets until the lien is satisfied and discharged. If you plan on putting your home up for sale at any point in the near future, having outstanding liens can complicate the process and make it impossible to get the clear title necessary to complete a sale transaction. To resolve a property lien, the underlying debt must be satisfied (i.e. paid in full) in order to be removed from the record. Once the debt is satisfied, the creditor can release the lien and full ownership rights under the deed can return to the homeowner.
The end result of a property lien is that the creditor will get paid only if and when the debtor decides to sell the property or wants to refinance for a better mortgage. If the lien exists on the property and blocks a sale or a refinancing opportunity, the debtor may decide that settling the debt is necessary in order to proceed in the way they want to. However, there is also the possibility that the debtor has no intentions of leaving the property and does not care about refinancing. In a situation like this, the creditor could be waiting for incredibly long period of time, and may never actually be paid at all. Thus, property liens are good collateral, but they are not a full-proof guarantee of payment.
The process of getting a property lien can be extremely time consuming and involved. Additionally, since every county can have different laws and regulations regarding property liens, it is always a good idea to enlist the services of an attorney so that the specific guidelines are properly followed. If not attached and recorded in the right way, the lien will be unenforceable and worthless. By having an experienced attorney during the process, the creditor has a much better chance of success during the filing process.