Mortgage Loan – What Is a Lien and How Does It Work?

Mortgage Loan - What Is a Lien and How Does It Work?Mortgage Loan – What Is a Lien and How Does It Work? – image from pixabay.com

Mortgage Loan – What Is a Lien and How Does It Work?. Liens might have a bad reputation, yet no longer all of them need to be avoided. Specifically, any mortgage lien placed by using your lender once you purchase a home, refinance, or get a domestic equity loan is a normal part of the borrowing method and now not anything to fear. A lien in simple terms becomes a hassle if you fall too far at the back of on your debt payments.

Here’s what you wish to understand about liens:

What is a lien?

How liens work

Types of liens

How to take away a lien on a property

What is a lien?

A lien is a claim on your estate related to an unpaid debt. It gives the creditor a way to collect what they’re owed if you don’t make payments.

If you want to refinance your mortgage or get a moment mortgage, you’ll must have a clear title. The same applies in case you want to sell your home; the recent home owner will want to be able to own the home devoid of anyone making a claim against their ownership rights.

How liens work

A lien can be voluntary or involuntary. Here’s how both differ:

Voluntary lien: That is a lien you agree to. When you purchase a home or refinance, you agree – somewhere in all that mortgage paperwork you signal at last – to allow the lender to place a lien on your property. The lien guarantees that in case you sell your home, the lender gets repaid.

Involuntary lien: This a lien you don’t agree to. Property owners associations, tax authorities, contractors, or different collectors may place liens on your house if you don’t pay them what you owe.

Tip: The best print on your agreement together with your HOA or contractor will in all likelihood notify you about the opportunity of a lien. Make sure you understand what you’re agreeing to before signing any contract.

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Types of liens

Not all liens are bad: The first lien on a property is the mortgage. Devoid of that lien, you wouldn’t be able to borrow that huge amount of money for your home purchase. Some liens, however, may come as a results of legal action.

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Mortgage liens

A mortgage lien is not harmful as long as you make regular payments on your house loan. When you pay off your mortgage, the lien goes away.

If you fall way in the back of and can’t refinance or work out a catch-up plan along with your lender, you will emerge as in foreclosure. At that point, the mortgage lien allows the lender to promote your house and hold sufficient of the proceeds to cover what you owe.

Homeowners association liens

If you pay your property owners association dues and special assessments on time, you don’t must fear about homeowners association liens.

If you don’t pay them, however, the homeowners association can place an automatic lien on your property. And if you don’t catch up on what you owe, the HOA has the correct to foreclose.

Tax liens

A tax lien can be placed on your estate in case you fail to pay property taxes or income taxes. As with mortgage liens and HOA liens, in case you don’t make good on what you owe, the lien holder can foreclose in your home. They may then auction off the valuables to repay your debt.

For example: The IRS holds regular auctions of real and personal property it has seized to repay delinquent federal tax debts. Local tax assessors use a similar approach to deal with unpaid property taxes.

Mechanic’s liens

A mechanic’s lien isn’t exactly what it sounds like: It has not anything to do with automobiles. Instead, it has to do with contractors you hire to make repairs or innovations to your home. That’s why it’s also called a construction lien or materialman’s lien.

If you don’t pay the HVAC mechanic who repaired your air conditioner, they can attach a lien to your home. The same is true in case you don’t pay a roofer, a carpenter, or anyone else who works in your property.

Subcontractors and suppliers can also file a mechanic’s lien, so it’s important to paintings with reputable contractors who pay their subs and suppliers.

Judgment liens

Also called a judicial lien, a judgment lien can attach on your property once you lose a lawsuit and you owe the other party money. Whilst a creditor, such as a credit card company or debt collector, wins a judgment against you for unpaid debt, they are going to not automatically be awarded a lien against your home in such a lot states.

However, if you hold to refuse to pay and collection attempts don’t work, you may come to be with a judgment lien.

Solar liens

If you finance solar panels on your house, the solar company may positioned a solar lien in your estate till you’ve paid for the panels.

Learn More: What Is a Mortgage?

How to take away a lien on a property

Paying off the debt is the commonest way to remove a lien, yet other courses of action, such as settling with the lienholder, may be attainable too.

Pay off the debt

If the lien is legitimate and you have the money, repaying your debt is the plain solution. For example, if you didn’t conclude paying the contractor who reworked your kitchen, or you fell months in the back of on your HOA dues, you simply ought to make good in your commitments.

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Tip: If you have already paid what you owe, request a release or satisfaction of lien from the lienholder and ask them to record the satisfaction of lien with the county. If the lien isn’t legitimate, you may be able to get it eliminated in court.

Settle with the lienholder

If you have a judgment lien against your house for anything like unpaid credit score card debt, you perhaps able to negotiate a agreement with the lienholder.

In different words, you perhaps able to settle the debt for much less than 100% of what you owe, especially in case you have little to no domestic equity.

Another possibility may be to negotiate a payment plan to pay off the lien. Make certain to get any agreement in writing.

Sell the property

Yes, you can still sell a estate without clearing unpaid liens, but you’ll need home equity.

If the proceeds from promoting your house will be excessive enough to repay your debts, then a sale can remove the lien and clear up the title. The obvious drawback of promoting your home to pay off a lien is that you’ll have to locate another place to live.

Run out the statute of limitations

If you carry out on paying a lien for long enough, will it simply move away? This is what people are hoping for once they talk about jogging out the statute of limitations, but it’s much more more likely to land you in further warm water.

Statutes of limitations on real estate liens vary from state to state. They also depend upon the type of lien. For example:

You can’t run out a estate tax lien, HOA lien, or mortgage lien. Tax collectors, HOAs, and creditors can all foreclose on your estate in case you don’t pay them.

The statute of limitations for a federal tax lien is generally 10 years. However, it can be multiplied if you enter an installment agreement with the IRS or get them to release a levy on your assets. Furthermore, the IRS can levy, seize, and sell your assets in case you refuse to pay your taxes.

For a mechanic’s lien or judgment lien, the law varies via state. In Georgia, for example, the statute of limitations on a judgment lien is seven years. The creditor can then renew the lien for another seven years.

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