If you are buying or selling a home, you may hear a lot of talk about liens. Maybe you have a lien on your home, or if you are purchasing property, you may have liens that you need to pay off in order to purchase a home. What is a lien, and which liens should you be concerned about if you are buying or selling property?
What is a Lien?
Liens are nothing more than money that “sticks” to your property, and has to be paid to a third party (the lien holder) when property is bought or sold. The typical example is a mortgage. If you owe $50,000 on your mortgage at the time you sell your house, you will have to pay that off (technically, it will be paid off by the buyer and deducted from your proceeds of sale).
Voluntary and Involuntary Liens
Mortgages are voluntary—that is we agreed to have liens burden our property, and if you are a purchaser, you probably expect there may be a remaining balance on the seller’s home that will have to be paid off at the time of closing.
But sometimes liens are involuntary, put on by creditors. For example, if you have a judgement against you, the creditor may try to lien your home. That means that you will have to pay that money off when selling your home. Again, it will be deducted from your proceeds at closing.
Involuntary liens are often put on property by government agencies, construction companies or contractors that work on your home, or by creditors who obtain a judgment against you.
Liening and Foreclosing
Do not get confused—although some liens can be foreclosed on, not every lien can be. You need to sign a mortgage, or other document that specifically pledges your property as collateral to pay the lien, in order to be foreclosed on. Without a mortgage, an involuntary lien that is put on your property by a creditor will just sit, accruing interest, until you sell your home.
Note that some liens can foreclose or force you out of your home, even without a mortgage, although these are usually only limited to government property tax liens.
Lien Searches and Property Purchases
Liens have to be recorded in the public record to be valid. That is why when you purchase a home, you will have to do a lien search. If it turns out that there are too many liens, you may decide not to purchase the property, or the seller may decide not to sell it, as the liens will decrease the amount of the purchase price that the seller realizes.
If you miss a lien accidentally, or if you purposely sell and purchase property without telling the lien holder, the lien stays with the property—that means that even though you have paid full price for the property, your property now has the same lien on it that it had when you bought it.
Contact our New Jersey real estate attorneys at The Law Office of Agnes Rybar LLC for help today with any real estate law issue.
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