You know that if you don’t pay your mortgage and go into default, the financial institution has a right to your house. This is because it has a lien on it. But other creditors or companies can also place liens on your home.
There are several different types of liens, but they all work the same. Your property is held as collateral until the debt is paid. Here is all about liens and how to avoid them.
Liens Allow Creditors to Seize Assets
Liens allow creditors to seize and sell your assets if debts aren’t repaid. When the creditor has a lien against you, that means it has a legal claim to your property as collateral until you pay your obligation. Courts can place liens on your assets, such as property and bank accounts. You cannot sell your property without the lien-holder’s consent. Or, if you are able to sell your property, you must pay the lien-holder out of the proceeds.
Public records show that a lien must be released before an asset can be sold. That’s why banks require a title search before issuing mortgages to check for existing liens.
How a Lien Works
There are two distinctions in liens: general and specific.
A general lien lets the creditor seize any and all of your assets to pay a specific debt. For example, if you own a home and a rental property, the IRS can put a general lien on both properties until the debt is paid.
A specific lien only allows the creditor to seize the property designated in the agreement. A mortgage is an example of a specific lien.
For example, if you fail to make payments on your primary residence, it can only seize that and not your rental property.
There are both voluntary and involuntary liens. A voluntary lien is when you use your property as collateral to secure a loan, such as a mortgage or home equity line of credit (HELOC). You, as the homeowner, are allowing the creditor to have a lien on your property.
Involuntary liens are the result of failing to pay someone you owe a debt to.
Different Types of Liens
There are different types of liens. Each has its own purpose and circumstances for use. According to Rocket Mortgage, the rule of lien priority is that the first in line is paid first. That means your bank with the mortgage on your home will be paid first if you default. Anyone else with a lien will be paid after that in the order in which they placed the lien on your property.
Bank Lien
A bank lien gives a bank a legal right to assets you pledge as collateral for a debt or loan. This can be a home, car, or personal loan. The bank has the right to seize the collateral and sell it to recoup its loss if you default. It’s a voluntary lien.
Tax Liens
An involuntary lien is a tax lien. According to the IRS, a federal tax lien is the government’s legal claim against your property if you fail or neglect to pay a tax debt.
Tax liens are given priority over all other liens; this means they must be paid first.
Mechanic or Construction Lien
These types of involuntary liens must be filed through the court. They are placed against real property for which a contractor or subcontractor has performed work and hasn’t been paid by the property owner.
A mechanic or construction lien can only be placed on the property that was worked on. If the contractor worked on your primary residence, it can’t put a lien on your vacation home.
Judgement Lien
A judgment lien is placed on your assets or property by a court if it establishes that you have an outstanding debt. Creditors who can prove you owe them money because you defaulted on an agreement can file judgment liens in local courts.
If your property is sold, the lien-holder will be paid from the sale proceeds.
Child Support Lien
Most states allow liens to be placed on the property of a parent who fails to pay child support. These liens can be attached to property or bank accounts. The lien stays in place until the overdue support is paid, or the custodial parent agrees to cancel the lien.
Can a Lien Be on a Credit Report
According to Experian, liens have not shown up on credit reports since 2018. But with real estate and bank liens, remember that the loan associated with the lien is on your credit report. If you’ve defaulted, the loan default will show.
The only public records listed on credit reports are bankruptcies. Those remain for a limited time.
How to Remove a Lien
The best way to eliminate a lien is to pay it off. Contact the lien-holder to determine the exact balance you must pay to satisfy the lien.
If you can’t repay the debt, try to negotiate with the creditor for a reduced settlement. It will often do this for a lump sum.
If you dispute the lien, take the matter to court. A judge may dismiss it if the lien-holder can’t prove the lien is valid.
If you repay the debt, ensure the creditor signs a lien-release document giving up its claim on your property. File the release with your local county recorder’s office to remove it.
The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
