Large quantities of money are frequently involved in real estate deals. This means that there will practically always be a debt associated with the transaction after the fact. Loans and mortgages are regularly used to provide the necessary funds for the acquisition of a property.
These loans carry some level of risk for the creditor. They are being asked to provide a substantial sum of money, understanding that it would be paid back in instalments over time. But how can they be assured that the borrower will repay them?
In a nutshell, they can’t. This is why it is dangerous. They can, however, design enforced scenarios that incentivise the borrower to repay the debt on time. A lien is one means of ensuring that a borrower realises that it is in their best interest to repay a debt.
So What Exactly Is A Lien?
A lien is a legal right placed on assets often used as collateral to repay a debt.
A lien is used to guarantee an underlying obligation, such as debt repayment. If the underlying obligation is not met, the creditor may be able to seize the asset covered by the lien.
A lien gives the lender the right to seize the property if the loan is not repaid per the conditions of the contract. These agreements can be implemented when the buyer works with a title and closing company to complete the transaction.
There are, however, various sorts of liens. And the type of lien will be determined by how it is created and used.
The arrangement that produces the lien will have a significant impact on its classification. A consensual lien is an agreement between the borrower and the lender to the terms of the lien.
This is the primary distinction between a voluntary lien and statutory and judgement liens. In each of those circumstances, the borrower’s consent is not required to create the lien.
These circumstances arise when a judge grants a lender the authority to seize property after the borrower fails to meet the contract’s conditions.
After a borrower’s loan payments fall behind, the lender may sue. After completing the court process, the lien can be created.
If these liens are not fulfilled by what is now accessible at the time of the judgement, they may potentially extend to future properties.
As previously stated, not all liens result from an agreement between the borrower and the lender. Statutory liens exist as a result of measures taken under state or federal law. If the loan terms are not met, a lender may sell off a portion of the property in question.
Statutory liens are classified into several types.
- Tax Lien
Unpaid taxes can have a variety of unpleasant consequences. One such possible outcome is that the government may place a lien on your property due to unpaid property taxes. Local legislation will govern how this occurs, but the lien is typically tied to the property that owes taxes. Failure to pay national taxes can result in liens being put on all of the person’s property.
- Mechanic’s Lien
Hiring an expert to come to your house might be costly. If you do not pay for house repairs or remodels, a lien will be put on your property for the amount outstanding. For example, suppose a person had a new roof installed on their home but forgot to pay the associated bills.
- Landlord’s Lien
A landlord’s lien, which is most commonly used for commercial property, allows a property owner to recover unpaid rent from a tenant.
Contact Lamb, Carroll, Papp and Cunabaugh, P.C., Attorneys at Law today for legal help.