Author: Jack Sternberg Added: May 20, 2008
A lien is defined as a claim against a property for repayment of a loan or other judgments. This sounds like a very boring topic, but it's one of vital interest to you as an investor. This is because of one very important fact--a lien affects the ability to transfer ownership of a property! Believe me, it gets very exciting (and unpleasant) when a lien pops up and causes a very profitable deal to fall through. Failure to do due diligence on properties can cost you a lot of money! So, my advice is to study closely the information in this article. It can keep you on the path of profitability and save you considerable heartache. Categories of Liens As I said earlier, liens are a claim against a property. In general, there are two categories of liens—voluntary and involuntary. A voluntary lien is a mortgage or deed of trust lien. In other words, when you buy a property, you agree that the lender has a claim on that property until the mortgage or deed of trust is paid in full. An involuntary lien is the result of legal action. Hopefully, you won't have to deal with every type of lien I describe below, but, if you do, you'll be forewarned and forearmed and can deal with the situation in the most effective way possible. Types of Liens Bail bond lien A bail bond allows a person arrested on criminal charges to be released on bail pending his or her trial. One way to get a bond is to pledge capital in the form of real property (a home, etc.). Child support payment When a property owner fails to make court-ordered child support payments, the state government places a lien against the property's title. Code enforcement lien This type of lien occurs when a property owner is fined for failing to correct code violations and fails to pay the resulting fine. The local enforcement board then places a lien on the property's title. Corporate franchise lien This lien can occur within states that have a corporate franchise tax for the right to do business within those states. If a corporation fails to pay the tax, the state places a lien against any corporate real property within the state. Federal judgment lien This lien involves debtors who've defaulted on federally guaranteed loans (SBA loans, student-guaranteed loans, etc.). When default occurs, a lien is placed against the property title. Federal tax lien When a person fails to pay federal income tax, the Internal Revenue Service has the statutory power to place a lien against the title of any real property belonging to that person. Needless to say, you don't want to fall into the swamp of legal entanglement that comes from dealing with the IRS. Homeowners' association lien This lien occurs when a member of a homeowners' association fails to pay his or her dues as per the deed to the property. The lien is placed against the property title. Judgment lien This type of lien occurs when lawsuits award monetary damages to the plaintiff against the property owner. In this case, a lien is placed against both personal and real property of the defendant until the judgment is made. Marital support lien A lien is placed against a property's title when a property owner doesn't pay court-ordered marital support. This can be done on the local, state and federal levels. Mechanic's lien This is a statutory lien which allows architects, contractors, engineers, mechanics, surveyors, etc. to take legal action against a debtor who's failed to pay for furnished work or material for the improvement of real property. The lien is placed against the real property being worked on. Mortgage and deed of trust lien As I mentioned earlier, this is a voluntary lien created when real property is pledged as security for the repayment of the debt. Municipal lien A lien is placed against a property's title when a property owner fails to pay for municipal services (e.g., water, electricity, etc.). Public defender lien When a property owner fails to pay for a court-appointed public defender, governments place a lien against the property title. Real property tax lien When a property owner fails to pay his or her property taxes, liens are placed against the property by local authorities. State inheritance tax lien This is a tax levied against the estates of deceased individuals. If the tax is not paid, a lien is placed against the estate for the amount owed. Welfare lien The local, state, and federal governments can place a lien against the property's title when a property owner fraudulently collects welfare payments. Sources of Information About Liens There are many local, state, and federal sources for getting detailed information on liens. In terms of state and local agencies, the names vary with the region, but, in general, you can get information from the following offices: Circuit court office Check for tax liens on state income, state inheritance, state franchise taxes, etc. Also, check for liens against estates of deceased persons, guardianship of minors and incompetents, termination of joint tenancies, etc. County clerk's office Check for the same items as in the circuit court office. Country recorder's office Look for judgment liens, property tax liens, federal tax liens, etc. Check for conditional sales contracts (contracts for deed, land sales contracts, etc.). Also, look for notices of "lis penden." This is a notice filed or recorded for the purpose of warning all persons that the title or right to the possession of certain real property is in litigation. The Latin term literally means "suit pending." Municipal clerk's records Analyze the records for any liens for failure to pay for municipal services like water, sewer, and trash removal services. Also, check for any code enforcement fines. United States Court Look for any federal judgments against the title holder. These could include federal tax liens and liens resulting from defaults on FHA, Department of Veterans Affairs (DVA), SBA, and student loans.(see http://www.pacer.psc.uscourts.gov ) Key Point: Always, always perform due diligence in regard to liens! A little investment of research time can make the difference between a nice profit and a financial and legal nightmare! Jack Sternberg
--- Jack Sternberg is a nationally recognized expert on real estate investment who's been in the business for more than 30 years. Sternberg is the creator of the renowned "Buyers First" Program. His deals have totaled over $750 million and he's been to the closing table more than 1,500 times. For more, visit http://www.askjacksternberg.com
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