There are many types of liens that are used to secure property and assets. Let’s take a look at some of the most common lien types.
A mortgage lien is taken by a mortgage lender when a borrower takes out a loan to buy a house. A mortgage lien is voluntary and is one of the many documents homeowners sign when closing on a house. As long as you make consistent payments toward your mortgage and eventually pay it off, the lien will be resolved. However, if you fall behind on payments and refinancing isn’t an option, then you might end up in foreclosure. In that case, the mortgage lien gives legal permission to the lender to sell your home and use the money from the sale to cover what you owe.
A judgment lien is a type of involuntary lien that’s granted by a judge, usually due to a lawsuit. When a borrower fails to meet the financial obligations set by a loan, the creditor can sue the borrower in court for any outstanding balance that remains. When the court rules in favor of the creditor, the creditor is given the right to take possession of a property — which can include things like real estate, vehicles, a business, or any other type of asset that satisfies the court judgment.
A tax lien is a government-enacted lien that allows tax authorities to seize the property or assets of a delinquent taxpayer. Unpaid taxes, such as income taxes or property taxes, can result in the Internal Revenue Service (IRS) placing a legal claim on a taxpayer’s property. If tax liens go unpaid for an extended period of time, the IRS can order a sale of the property in order to retrieve the money due from the unpaid taxes. A tax lien can also affect the taxpayer’s ability to sell existing assets and build credit.
A mechanic’s lien is a type of lien placed on a property owner when they fail to pay a contractor or builder for services or materials they used to make repairs on a home. If a homeowner doesn’t pay the worker or doesn’t abide by the regulations set in the contract agreement, the contractor can go to court and get a judgment against the owner. In this case, property or assets can be auctioned off to pay the lienholder (which in this case would be the contractor).