How Do Property Liens Work?
- A lien is an encumbrance placed upon a piece of property that grants a party other than the owner the legal right to take control of the property in the event that a debt or other obligation is not met. While liens are often viewed in a negative light, most homes are under a lien in the form of a mortgage. The lien does not mean the property is in danger of repossession or foreclosure, but violation of the terms of the lien enables the lien holder to take control of the property as compensation for the owner's failure to meet his obligation.
- There are two general types of liens: contractual, or consensual, liens and regulatory, or non-consensual, liens. Contractual liens are those the owner enters into voluntarily under a contract that she expressly agrees to uphold. Common types of contractual liens are mortgages and personal property loans, such as car loans or boat loans. Contractors and mechanics may also be granted a contractual lien over a property for services rendered.
- Regulatory liens are property interests granted to parties, often a state or the federal government without the express consent of the property owner. Regulatory liens are obligations created as a result of laws or statutes. For instance, real estate owners are obligated to pay property taxes. If those taxes are not paid, the government can prevent the owner from selling the property and attempt to recoup the money it is owned, because the tax amounts to a lien on the property. Tax liens are not limited to the real estate tax on a specific property; the government can encumber a piece of property to recoup other unpaid taxes, such as income taxes, capital gains taxes and estate taxes. Other types of regulatory liens include those that arise from court judgments, such as unpaid child support or alimony, and those that arise from trade laws.