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What is a Mortgage Lien?
A mortgage lien is a legal claim or encumbrance on a property that is mortgaged. There are a few different types of liens; a second, third, or subsequent mortgage is a type of lien. A tax lien can be assessed on a property due to unpaid federal taxes, or a lien from a creditor due to unpaid debts. In a mortgage lien, the home serves as collateral for unpaid debt; when the home is sold, the creditor who has assessed the lien against the home receives a cut of the profits from the sale of the home equal to the amount of the lien.
A mortgage lien sounds slightly confusing, but it really isn't. In fact, a first mortgage is a type of mortgage lien. When the borrower takes the mortgage loan out on the home, the bank then holds a lien against the property. If the borrower does not pay the mortgage, the bank can foreclose on the home and reclaim the property, thereby getting their money for the loan back. If the borrowers make regular payments on the home, however, they will eventually pay off the mortgage, and own their home outright, at which time the bank relinquishes any claim to the home and removes the lien on the property.
There are other reasons for a mortgage lien to be assessed against a property, however. Unpaid taxes are a common cause, which may also be referred to as a tax lien. Unpaid legal fees are another reason that a lien may be assessed against the home. These are known as non-consenual liens. Consensual liens, by contrast, such as those taken out by the homeowner against the home in the form of a second or third mortgage, are initiated by the owner.
Each type of lien is filed with the county in which the property is located. Once the lien is paid, a petition to release the lien is then filed with the county, and the documentation is updated. It is important for the homeowner to make sure that this happens in a timely fashion to prevent any difficulties if the home is ever sold at a later date. The only way to discharge a lien is to pay the lender; as mentioned above, this can occur at the time of the sale of the home when profits are made, or the debt may simply be paid by the borrower as with any other debt.
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![In a mortgage lien, the home serves as collateral for unpaid debt.]()
By: pyzataIn a mortgage lien, the home serves as collateral for unpaid debt.
Discussion Comments
@Soulfox -- You just had to go and mention bankruptcy, didn't you? That opens up a whole can of worms in terms of which liens are paid in full, which ones are not, etc. You are not going to get rid of tax liens or first mortgage liens, for example, but things get confusing when you move down the line.
That is precisely why credit scores are so important when it comes to handing out second mortgages or doing other things that secure a loan with a home. Someone with good credit is far less likely to go bankruptcy than someone with spotty credit.
Paying off the debt secured by a lien isn't the only way to get rid of it. Some liens can be discharged in bankruptcy court when the underlying debts are paid off for a few cents on the dollar or not at all in some cases.
A lien is a way to guarantee a debt will be paid, but it is not ironclad.
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