When buyers take possession of a house after settlement, they truly own the house. Some buyers think they don’t own the house until the mortgage is paid off. In reality, you own the deed to the house and land, but the lender has a lien on the house for a mortgage. Once the mortgage is paid in full, the lien is removed.
At least, that’s the way it’s supposed to work.
First, let’s get down to the brass tacks of the papers connected to your property. The most important is a deed of trust or title to the property. These documents prove you own the land and house. After the transaction is completed, the settlement attorney records this transfer of the deed at the courthouse to prove to all around that you are the rightful owner of the property.
Second, most home purchasers have a “note” on the house, or a mortgage.
This is in the form of a lien and also is recorded at the courthouse as part of the land record file.
Liens are used by creditors to ensure payment from someone who owes them money.
MyLawyer.com defines it: “A lien is a legal assertion that you have a claim of a specific value against certain property. In other words, a lien changes a general court judgment against the debtor into a specific claim against whatever property is subject to the lien. If the debtor sells or refinances the property, you would more than likely be paid out of the proceeds.”
The purpose of the lien is to collect money eventually from the property owner.
“Realize that a lien is essentially passive placing a lien doesn’t get you your money right away,” according to MyLawyer.com.
“Instead,” the site explains, “it gives you standing as a creditor to be paid from proceeds if the property is sold or refinanced. Because property to which liens are attached often changes hands or is refinanced, usually a lien will eventually produce enough cash to pay off a judgment, with post-judgment costsand interest.”
The best-known lien is the mortgage. This is considered a voluntary lien, but there are other types of liens.
A judgment lien usually is placed on your house from a creditor who claims you owe that creditor money. This judgment can damage your credit report and inflict havoc on your ability to borrow money in the future.
There’s also a mechanics lien. “The purpose of the lien law is to ensure that those who contribute labor or material to enhance the value of the property of another should be justly protected,” according to AZLitigation.com.
Property owners more susceptible to this type of lien are those who purchase a new-construction home.
If the builder doesn’t pay the service providers, such as electricians or plumbers or the lumberyard, the house can’t be sold until the debtis paid off and the lienis removed.
Then there’s the tax lien. This can hurt, because you’re dealing with the Internal Revenue Service, state revenuers or even the local tax board. If you’re behind on your taxes, these agencies have the right to place a lien on your house in their efforts to collect back taxes.
Liens have been known to remain on a property even though the debt has been paid. The lender may have simply failed to have the lien removed. That doesn’t cause too much of a problem if you can get in touch with the lender and have it removed. Problems arise when the old creditor is nowhere to be found.
The way most people find out about liens is during a home sale or refinance.
If you find an old lien on your property, talk with an attorney about having it removed (assuming it’s not because you really owe someone money and haven’t paid off the debt). Nevertheless, you really have a problem when you know you have paid off the mortgage or debt and the lien remains attached to your property. That’s when a good lawyer comes in handy.
M. Anthony Carr has written about the real estate industry for more than 13 years. Reach him by e-mail (email@example.com).