A person or organization can usually put a lien on a home any time a person fails to take care of a debt. This includes cases of unpaid taxes, child support and some marital actions. Doing so usually requires giving the homeowner notice and filing paperwork with local authorities, however, and it's usually not possible to sell the property without a formal court judgment first.
A lien is the legal term for the right of one party to sell property that belongs to someone else. When a homeowner has one of these claims against his house, it can create serious problems, such as making it harder to find a buyer or to refinance. Some individuals also end up turned out of their homes.
In most cases, when someone owes any kind of debt acquired through borrowing, not paying for goods or services or from previous legal judgments, the person or organization owed can take him to court. If the judge finds in favor of the plaintiff, he might put a lien on the debtor's home. The plaintiff then may sell the property if the debtor can't bring his account current, giving any extra funds from the sale back to the homeowner.
Typically, a judge tries to arrange alternative ways to erase debts, such as wage garnishment, because often the value of the property exceeds the amount on the homeowner's delinquent account. A court doesn't want to sell a home worth $300,000 US Dollars (USD) for a debt of only $10,000 USD, for example, but it will do so if the property truly is the only thing of value the homeowner has and no other options are available. Additionally, plaintiffs are not always limited to one recovery method once they receive a judgment in a lawsuit, so if the amount owed is big enough, they might go after things like the debtor's car in addition to the home.
Mortgage agreements are perhaps the most common sources of home liens within the larger judgment category. When a person borrows money to buy a home, the lending institution places a claim on it until the mortgage is paid in full. If the homeowner doesn't keep up with payments, the lender might try to foreclose and take the property. The situation is similar when a homeowner takes out a second mortgage or home equity line of credit.
A government may put a legal claim on a home in some cases. It typically resorts to this when people owe local, state or federal taxes and other methods of payment collection haven't been successful. The tax office might assess additional penalties, fees and interest on top of trying to get the property. In the United States, the Internal Revenue Service is responsible for the enforcement of tax payment and the placement of liens.
When a person has not paid his property taxes and his home also has a current mortgage, the lender often steps up and pays the balance. As an entity with a financial interest in the house, the bank would rather do this than see it sold. It adds the amount of tax paid to the mortgage balance, however, so the homeowner still has to deal with the delinquency eventually.
If a person works with a contractor, such as an electrician or a plumber, and doesn't pay his bill, the contractor can place a mechanic's lien on the debtor's home. Some people authorize this when they make payment arrangements on large improvement projects. Many times, workers won't try to take the property by going to court, but because the claim technically is still valid, it restricts the homeowner's property and financial options.
Courts may allow a person to put a claim on someone's house in two major domestic instances. The first is if the homeowner owes a significant amount in child support. The second is during marital actions in which one spouse wants the lien in order to cover attorney costs. This happens only when the home is legally viewed as community property, and if it is granted, it doesn't effect the other spouse's interest in the home.
Points to Consider
Securing rights on a home requires that a person or organization go through the proper legal channels, which usually means giving the debtor formal notice of the intent to file paperwork with the proper local authority. The filer also usually has to publish the claim, alerting the public to his rights. This sequence, along with the fact that enforcement typically requires going to court, makes it quite rare that anyone would be in danger of losing their home because they weren't aware of their obligations.
Sometimes, a homeowner ends up with multiple filings against his property. In this case, current laws determine which entity gets priority. Ones that take precedence are known as superior, while secondary claims are called junior.
This kind of legal action connects to bad debt and, therefore, can cause a person's credit score to drop. As with repeat bankruptcies, having multiple claims is worse than having a single one. It is to a person's financial benefit to do all he can to get his credit back in good standing in these cases.