What is a Property Lien?
When you take out a mortgage to purchase a new home, your lender puts what is known as a property lien on the house. What this means is that if you get behind on your mortgage payments, your lender has the legal right to seize the home in place of the money you owe them. If you’re looking at houses for sale in Dacula, GA, you can expect this type of lien to be placed on the home you buy. However, there are other ways a property lien can be used, and some of those uses are not ones you want to have placed against you.
Voluntary vs Involuntary Property Liens
Liens come in two types: voluntary and involuntary. A voluntary lean on your property is one that you agree to. The lien placed on your home when you take out a mortgage is a voluntary lien because you agree that the lender has the right to the property if you are unable to make your payments. You’ll also have a voluntary lien placed on vehicles and other things you purchase with specific loans.
An involuntary property lien, on the other hand, is a lien that was placed on your home without your consent. This can occur if you owe money for a cash loan or other type of financial obligation and haven’t been making payments. To get an involuntary lien, a creditor has to go through a specific legal process that involves filing paperwork at the state or county level. Many types of agencies can file for an involuntary lien, including creditors, contractors, and the government.
How Does a Lien Affect You?
If you have a lien filed against your property, regardless of whether it’s voluntary or involuntary, it does limit what you can do with that property. Liens are designed to ensure that your creditors are compensated if you default on your loan or fail to pay your debts. Generally, a voluntary lien has fewer restrictions. If you decide to sell your home before you’ve paid off your mortgage, for example, there’s nothing stopping you as long as you pay off the mortgage with the proceeds from the sale.
If you try to sell your home while you have an involuntary lien on it, though, it’s a much more difficult process. Few buyers are going to want to enter into any type of deal with you knowing that your creditors have a claim to the property.
As far as your credit report goes, the lien will show up. This means if you apply for any type of loan, the lender will see your current lien and the reason it’s in place. You will likely be denied loans until you’ve dealt with the lien because it’s a sign that you haven’t fulfilled a financial obligation. Lenders won’t want to work with someone who appears to be a financial risk. Of course, voluntary liens such as mortgages are not seen in such a negative light.
Types of Property Liens
The type of lien placed on your property states what kind of debt you own. A lien from a bank or other lender indicates a mortgage. A lien put in place by the IRS shows that you haven’t paid your federal income taxes and owe the government money. Liens placed on properties from the county government indicate unpaid property taxes. Contractors can put a mechanic’s lien on a home if they weren’t paid for their work. Finally, a general judgment lien is put in place by the court. Any creditor can petition for this type of lien. If they have proof that you owe them money and have not been making payments, it’s very likely the court will grant the lien.