A lien gives a creditor a stake in a debtor's property if the debtor cannot or will not pay, either to the IRS, to local governments or to private individuals. When the property is sold, then the lien holder will receive a share of the proceeds. Or, the lien holder can foreclose on the property after a certain time. A lien is a valuable tool that can help creditors collect their money, but liens are complicated and come in several varieties.
Tax Liens
If a lien is placed on a house for unpaid taxes, then the seller cannot transfer the title until the money is paid. Even if the title is transferred, the new owner takes on the responsibility for paying the bill. For that reason, anyone considering buying property must make sure the title is clear and that no liens are attached to the property.
In some cases, a property owner can ask the IRS to subordinate the lien, which means that the lender will be the first to get paid, with the IRS coming second. If the lender is the first to get paid, then they will be more willing to help a troubled property owner refinance a mortgage.
Tax liens are also frequently used as investment vehicles. A person can invest in tax liens by purchasing tax lien certificates at county auctions. When a person falls behind on property taxes, the local government still needs that money to pay for services, like schools, police and snow plows. To get that money, the government sells the tax certificate. The buyer will receive what he paid, plus interest, when the owner pays the property taxes. If the owner does not pay, then the buyer can foreclose on the property after a certain time.
Mechanic's Lien
A contractor can place a mechanic's lien upon a property if the owner or another contractor has not paid a bill for services rendered. For example, if a general contractor hires a subcontractor to help renovate a home, and the contractor doesn't pay the subcontractor, then the subcontractor can place a mechanic's lien on the home. The only way to remove that lien is to pay the bill.
Unfortunately, homeowners are often caught in the middle of mechanic's liens. If homeowners pay the contractor, but the contractor doesn't pay the subcontractor, then the subcontractor may place a lien on the property, which makes it harder for the homeowners to sell or refinance, even if they played by the rules. To prevent this problem, homeowners can make contractors and subcontractors sign lien waivers before they get started working.
Judgment Lien
In a court case, if the defendant is required to pay, then a lien can be placed on the defendant's property. A good example would be child support. If the defendant does not pay child support, then the plaintiff can go back to court and have a lien placed on the defendant's property. When the property is sold, the plaintiff may receive the proceeds, provided she is toward the front of the line when it is time for the defendant to pay his debts.
 | A notice of intent to lien is an announcement that someone to whom you owe money is about to declare that they have a claim against your property. This is one document that you want to take seriously. |
 | Through tax lien certificates, you can invest in people who have not paid their property taxes. If the property owner pays the taxes, you will receive your investment, plus interest. |
A lien waiver protects you from contractors sending you the bill and placing a lien on your house if a builder, developer or contractor did not pay for the work. |
Tax lien investing may sound lucrative, but it is risky and it is not for novices. You need to understand real estate auctions and the specific laws of your county before you dive in. |
Federal tax liens are often placed on homes if homeowners cannot pay Uncle Sam. If this describes your situation, you may be able to subordinate the lien so you can get a loan that will help you pay your bill. |
