If you’re planning to buy real estate, as exciting as that can be, there’s also a lot that can go wrong. As such, it is very important that you are familiar with the dangers involved in making investments like this, and take steps to keep your property safe.
One such danger is an instrument called a lien (usually pronounced “leen”).
What Is A Lien?
A lien is a financial claim against your property. This means that somebody (a creditor) is claiming that you owe them money. Liens can also be placed on personal property, such as cars, but the most common use of liens is for real estate. Liens are public documents that are on file at the County Register’s office. In some instances, in order for a lien to remain in effect, the lien holder must renew it from time to time. If the lien holder fails to renew the lien, the instrument will be nullified.
Types Of Liens
1. Mechanic’s Lien
Perhaps you are unable to pay the contractors who built your home, or the repairmen that performed substantial work on your home. In these circumstances, they might file a lien against you. This would bind you to pay them the money you owe.
2. Judgment Lien
If you lose a court case and are unable to pay the damages specified in the judge’s verdict, the winning party might file a lien on your home. This could remain in effect until your payment has been made.
3. Tax Lien
If you have failed to pay your property tax, the local government might place a lien on your home to ensure that you pay what you owe.
Why Liens Matter In Real Estate Deals
As we discussed in previous articles, in order for a property to change hands, it must have a “clean title.” This means that (among other things) there cannot be a lien on the property. Before a real estate deal can come to fruition, attorneys working on both sides of the transactions often will perform exhaustive title searches on the property. If the title is not “clean,” then the deal will be postponed.
What would keep a title from being clean? There are a number of things, and one of them is a lien. If there is a lien on the property, it cannot be sold until the property owner’s debt has been settled.
Liens are a common way for creditors to collect what they are owed. Generally, if homeowners are unable to repay their debts, creditors have the right to sell off the property to pay the lien, by way of foreclosure. In this way, the consequences for failing to pay off your lien are similar to the consequences of failing to make payments for your mortgage or deed of trust.
What Should I Do If There Is A Lien On My House?
Having a lien placed on your property might be scary or stressful, but is not the end of the world. In fact, it’s actually pretty common. However, you should do everything you can to have the lien removed as quickly as possible. The most efficient way to go about this is to negotiate with the holder of your lien. You might want to employ the services of a real estate attorney during this negotiation.
What Should I Do If There Is A Lien On The House I Want To Buy?
If you were preparing to put money down on a home, but the title search revealed that there is a lien on the property, this is a huge red flag. Buying this property just got a lot more complicated.
However, this is not an insurmountable problem. If your heart is still set on this piece of real estate, there are ways to structure the deal that will protect your interests. One example of how this could work is to structure the deal so that a third party escrow agent will make payments on the lien from the proceeds of the sale. Depending on the state laws, there are many potential solutions, but you will need to employ the services of a real estate attorney.
Have Questions About Liens In The Nashville Area?
Get in touch with us today to have a conversation about the intricacies of lien law in Tennessee, and begin taking steps to protect your interests.