What Is A "Lien" In Real Estate?
A “lien” is a simple legal term that claims the ownership of the property as listed on the
title of the home. It means that the home is being held as collateral until a certain debt is paid. The most common types of lienholders are the mortgage companies, but other examples can include utility companies, or even contractors. Basically, if the borrower owes money to anyone, that person or company can file a lien against the property.
When it comes to selling a property that has a lien or liens placed against it, the seller and the purchaser will find that it is next to impossible to complete the transaction until the liens have been cleared. However, there are some situations -- such as the homeowner not paying their mortgage or other debts -- where the lienholder will ask for the sale of the property in order to collect the money that is owed.
You will see this most frequently during a foreclosure proceeding. The borrower does not pay his monthly mortgage; therefore, the lender (the mortgage holder) will exercise its right to the collateral. The lender will
foreclose on the home and sell it to earn back the money that was owed on the loan.
Another example of a lien is a construction lien. If the homeowner decides to complete common repairs, maintenance or a remodeling project, it is common practice to hire a contractor to complete the work. Once the work has been completed, the homeowner should pay. Unfortunately, this payment does not always happen, and in these cases, the contractor will file a lien on the home to help ensure that the payment will be made without having to sue the homeowner.
When you decide to purchase a new home during the process, an
escrow agent or an attorney will investigate any liens on the property that need to be cleared before the home can be purchased. If this step is not completed and you purchase the property, you may not legally be the new owner. The title search will show any liens against the property and whether the owner is recognized as the owner.
Having a clean title is a very important step in selling a property and purchasing a property. If there are liens listed on the title other than the mortgage lender, this could be a problem. If the liens on the property are not cleared, you will not be able to buy or sell the property. This is a safeguard against purchasing a home that cannot legally be sold due to it being collateral for other debts owed.
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