Key Guide to Understanding Real Estate Liens: Types and Implications

Sep 20, 2023 | Real Estate Law

If you want to make informed decisions concerning real estate, it is imperative that you have a solid understanding of the many types of liens that can be placed on a piece of land. If you want to safeguard your interests and steer clear of complications, it is imperative that you have a comprehensive awareness of these liens, regardless of which side of the transaction you find yourself on. 

In order to guarantee payment, creditors and other groups put real estate liens on buildings. When it comes to property ownership and sales, these liens can make things more difficult for both buyers and sellers.

Let’s take a look at each type of lien in more detail and see how they affect who controls properties and deals.

Common Types of Real Estate Liens

Real estate liens are legal claims that serve as security for a debt or obligation. These liens can be placed on a property by creditors or other parties who have a financial interest in the property. The different types of real estate liens affect property ownership and transferability, making it crucial for both buyers and sellers to understand them.

  1. Mortgage Liens

Mortgage liens are a type of real estate lien used by lenders to secure repayment of a loan used to purchase a property. The lien gives the lender the right to seize the property if the borrower fails to make mortgage payments. Mortgage liens are typically the primary lien on a property.

  1. Tax Liens

Tax liens are a type of real estate lien used by local or state governments to collect delinquent property taxes. These liens give the government the right to seize and sell the property until the taxes are paid. Tax liens can also be placed for unpaid income taxes or other debts owed to the government.

  1. Mechanic’s Liens

Mechanic’s liens are a type of real estate lien placed by contractors, subcontractors, or suppliers who provided labor, materials, or services for property improvements and were not paid. These liens give the claimant the right to foreclose on the property to recover the unpaid debt.

  1. Judgment Liens

Judgment liens are a type of real estate lien filed by a creditor after winning a lawsuit against a property owner. The lien serves as collateral for the debt owed by the property owner to the creditor. The creditor can then foreclose on the property to recover the debt if the owner does not pay it back.

  1. HOA Liens

Homeowners association (HOA) liens are a type of real estate lien filed by an HOA when a property owner fails to pay HOA fees or assessments. The lien gives the HOA the right to foreclose on the property to recover the unpaid fees. HOA liens can also be filed for violations of HOA rules.

Implications of Real Estate Liens

One of the most significant implications of real estate liens is their impact on property ownership. Liens can make it difficult or even impossible to transfer ownership of a property, as the lien must be satisfied before any transfer can take place. This can be especially problematic in situations where a property owner is looking to sell or transfer ownership quickly.

  • Foreclosure

In some cases, failure to satisfy a lien can lead to foreclosure. If the lien is not paid or otherwise resolved, the creditor may have the right to foreclose on the property, leading to the loss of the property and potentially damaging the property owner’s credit.

  • Difficulty Refinancing

Another implication of real estate liens is the potential difficulty of refinancing a property. Mortgage lenders and other financial institutions may be hesitant to provide financing for a property that has existing liens, as it represents a higher risk for them. This can make it difficult for property owners to refinance their mortgages or take out home equity loans.

  • Legal Action

If a lien is not satisfied, the creditor may take legal action against the property owner to recover the debt or obligation. This can result in additional legal fees, court costs, and potential damage to the property owner’s credit or financial situation.

Understanding the implications of real estate liens is crucial for ensuring financial security and successful property ownership. Seek the guidance of a reputable real estate transaction lawyer to help navigate the complexities of liens and protect your interests.

Lien Responsibilities of Each Party

Duty of the Seller

The seller must disclose liens to potential buyers when selling a property. State rules and regulations govern disclosure, which might vary per jurisdiction. Sellers must disclose any encumbrances or liens that may impact the property’s title or value.

While disclosure standards vary by area, sellers must normally provide a written statement detailing known liens, including mortgages, judgments, and other claims. Not disclosing these liens might cost the seller. These implications may involve financial obligations or allow the buyer to terminate the deal.

Duty of the Buyer

When individuals purchase properties, they are granted ownership titles. In order to obtain a clear title, it is necessary to settle any outstanding liens before selling the property. This is because potential buyers generally prefer not to inherit someone else’s financial obligations and therefore request that the seller take responsibility for paying off any existing debts on the property.

A title search or title insurance might reveal liens and other obligations on the property, so purchasers should do their research. Since most liens are public data, you may check your property for liens immediately. Visit the local city or county records office for the information you need.

If the lien looks unjust or illegal to the buyer, you may need legal recourse. This may require consulting a real estate attorney to assess the lien and suggest future measures. You can negotiate with the seller or litigate to dispute the lien.  A real estate attorney may also advise and ensure everyone meets their legal requirements and disclosures during the property sale.

The Importance of Consulting a Real Estate Transaction Lawyer

Real estate liens are often unforeseen and quite stressful for everyone involved. To ensure that the sale is successful, a real estate transaction lawyer can provide valuable advice and assistance to property buyers and sellers in the following areas:

  1. Title Search and Examination: An attorney can investigate a property’s title to find any claims or liabilities. They may ensure a smooth title transfer by carefully checking public records and the chain of ownership.
  2. Due Diligence: An attorney may help purchasers understand the consequences of title search liens. As a result, they are aware of the nature, priority, and implications of these debts for buyers.
  3. Negotiation and Resolution: An attorney can negotiate with a lienholder on behalf of either party. They seek a lien release, payment arrangements, or settlement to achieve a compromise.
  4. Lien Removal: Legal guidance may help remove a lien from the property. Negotiating with the lienholder, contesting its legitimacy, or seeking legal remedies to resolve ownership rights concerns may be necessary.
  5. Contract evaluation: An attorney must carefully evaluate all purchase agreement documentation to establish sufficient lien protections. This protects both parties from unexpected property claim issues.

Attorneys experienced in real estate transactions with liens provide invaluable support and direction throughout the process. They help purchasers and sellers understand their rights and duties regarding these encumbrances.

Why Hire A Real Estate Transaction Lawyer In New Jersey?

If you are a buyer or seller who is currently in the middle of a real estate transaction being held up due to a lien on your property, it may be in your best interest to contact a real estate transaction lawyer to help keep the sale from falling through. At The Law Offices of Patel & Cardenas, our team has years of experience conducting real estate transactions and a proven track record of successfully assisting clients in reaching a favorable outcome. We can examine the specifics of your transaction and provide you with options that will increase your chances of completing the sale or purchase. We offer free consultations, so you have nothing to lose and everything to gain. Contact our offices today and explore your options.

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