The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
- Mortgage liens are a financial claim to a property that serves as collateral for a mortgage loan.
- A property lien can be either general or specific and voluntary or involuntary. A mortgage lien is a specific, voluntary lien.
- The priority of the liens on a property determines which debt will be repaid first in the event of default and foreclosure.
- The best ways to avoid involuntary liens on your property are to make timely payments and maintain organized files.
Mortgage liens are an essential part of the process of buying a home, but many potential homeowners don’t fully understand what they are or how they work. A mortgage lien is a financial claim to your property, allowing a lender to seize the home if you default on the loan. Here’s how mortgage liens work, the difference between voluntary and involuntary liens and how you can make sure your mortgage lien doesn’t become a problem.
What is a mortgage lien?
A mortgage lien is a financial claim to your property, which serves as collateral — or real security — for your mortgage. This means that if you default or stop making payments on your mortgage, the lien permits the lender to take possession of and sell your home to recoup the outstanding debt. A mortgage lien is essentially a safety net for the lender, who is loaning you the money to buy your home.
Although they sound negative, mortgage liens make homeownership possible for many people. As long as you pay your mortgage on time each month, the lien doesn’t keep you from selling your house or refinancing your mortgage.
What is the difference between a lien and a mortgage?
While “mortgage” and “lien” are often used interchangeably, the terms refer to two different things. A mortgage is a loan that allows a borrower to buy a house over a period of time, receiving money upfront from a lender in exchange for repaying the amount along with interest. A lien is a claim that allows a creditor to seize and sell collateral (for example, your house) to pay off the remaining debt.
Mortgage lien types
Liens are mainly classified two ways: as voluntary or involuntary, and as general or specific.
What is the difference between a general lien and a specific lien?
Specific liens are more common than general liens. The key difference:
- A general lien gives creditors the authority to seize a permissible possession if payment terms are not met. If someone fails to pay their federal income taxes, for example, the government can place a general lien on all of their assets, including their home.
- Specific liens are tied to one certain asset, and are typically used for larger loans, such as mortgages. If someone stops paying the mortgage on their vacation home, for instance, the lender can impose a lien on that specific property, but not on their primary residence.
What is the difference between a voluntary property lien and an involuntary property lien?
Voluntary property liens are created through a mortgage agreement, in which the mortgage borrower allows the mortgage lender to use the property as collateral in exchange for loan repayment.
Involuntary property liens are placed without the owner’s consent, typically as a result of unpaid debts. If a property owner experiences financial hardship and cannot pay their property taxes, a lien can be placed on the property.
Are mortgage liens bad?
Having a mortgage lien is not necessarily a bad thing if you continue to make regular payments on your loan. All homeowners with mortgages have a lien on their property. Involuntary liens, on the other hand, are placed on properties when owners are unable to pay their debts, such as property taxes. In order to sell your home, you’ll need to get these liens removed, which can be difficult to do if you can’t settle the debt.
How do I remove an involuntary lien?
Here are some ways to avoid or get rid of involuntary liens:
- Stay current on all payments due or paying off the debt in full.
- Regularly monitor your credit to ensure that no delinquencies have been added that could turn into a lien at a later date.
- Request a payment plan from the tax authority or the lender if you’re having trouble making payments.
- Dispute it with the issuer if it’s an erroneous lien.
- Hire a lawyer to settle a disputed lien.
- File for bankruptcy, which automatically erases some liens, such as second mortgages (this should be an absolute last resort, however).
How can I find out if there are any mortgage or property liens on my property?
In the majority of states, property owners can perform a lien search by providing the property address to the county recorder, clerk or assessor’s office. You can typically perform a lien search online for free. A small fee may be required to obtain a copy of the lien report.
If you’re selling your home, lenders for potential homebuyers will conduct a title search during the mortgage underwriting process to determine if there are any outstanding liens on your property. If there are, you’ll need to resolve the issue to remove the liens before closing.
FAQ about mortgage liens
There are many different types of property liens, each with its own purpose and restrictions. Common examples include:
- Property tax lien: Your state or local government can issue a property tax lien for unpaid property taxes.
- Federal tax lien: The IRS can place a lien on your property due to failure to pay your federal taxes. This lien can cover your personal property as well as other real estate assets, any vehicles and financial holdings.
- Homeowners association (HOA) lien: In most jurisdictions, HOAs wield the power to place a lien on your home if you do not pay your HOA fees.
- Mechanic’s lien: Contractors can place a lien on your home if you do not pay them for work they’ve done on your property.
- Judgment lien: In the event you lose a lawsuit, the plaintiff could file a judgment lien until you pay the money the court awarded to the plaintiff. Collectors of credit card debt, outstanding medical bills or personal loans might also secure a judgment lien against your property.
The priority of liens on a property, sometimes called lien positioning, identifies which debt will be repaid first in the event of default and foreclosure.
When the collateral, such as a home, is sold, the creditor with the highest-priority lien gets paid out first, followed by the second-priority lien holder and so on, until the proceeds have been exhausted. This means that creditors with liens in a lower position might not recoup all of their losses, or recover their money at all.
There’s one exception to lien positioning: money owed to the government, such as federal and property tax liens. These trump the “first in time, first in right” rule.
Up until about three years ago, an involuntary lien could damage your credit score. In 2017, the three credit bureaus (Equifax, Experian and TransUnion) agreed to drop tax and judgment liens from their credit reports. The decision reflected the fact that because various parties can place liens, they are often inaccurate or incomplete.
Your ability to secure a new loan or sell your home can sometimes be affected if there’s an involuntary lien on your home. That’s because most lenders won’t lend on a home with outstanding liens.
When you take out a mortgage, the lender places a lien on your home until you pay off the loan. This voluntary property lien represents the lender’s claim to the home, giving them the right to foreclose should you stop making mortgage payments. If you continue to pay your mortgage, this voluntary lien doesn’t prevent you from selling your home in the future. If you can’t pay certain debts, however, you might encounter an involuntary property lien, such as a mechanic’s or property tax lien. Unlike a voluntary mortgage lien, an involuntary lien could hinder your ability to sell your home, so it’s crucial to get it resolved before listing.