A lien is a tool used to collect or secure interest in a debt. It’s a legal action that’s also a public record and is often reported on your credit report. When someone files a lien against you, it's difficult to obtain new credit and sometimes hard to find a new job. Most lien holders are willing to work with you to release the lien and might offer a conditional or unconditional release. While an unconditional release frees your property completely, a conditional release requires you to fulfill your promise to pay. Depending on the type of lien filed against you, you might be eligible for a partial release or reorganization of lien priority.
A lien attaches to physical property you own, but in most cases, the lien holder only receives an interest in your property. If you keep whatever the lien attaches to and don't sell it, the property remains yours. However, in some cases a lien may lead to a levy, which can force you to sell or surrender the property. A lien may also prevent the completion of a project. For example, if you hire a contractor for a construction project and don’t pay according to the agreement made with the contractor, or you take your car in for repairs and don’t pay the bill, you could have a mechanic’s lien filed against you. After a mechanic’s lien goes through, a contractor isn’t legally obligated to finish your project until you pay the lien or make arrangements to pay.
A conditional lien release means you make arrangements to pay the lien by issuing a payment to the lien holder. The lien gets released upon the condition that your payment clears. This differs from other types of lien releases because if your payment isn’t honored by the bank, the lien goes back into effect.
Consider your lien satisfied if you receive an unconditional release. This type of release doesn’t place any restrictions on the discharge of your property from the lien. In most cases, it means your check for a conditional release has cleared or you have made suitable arrangements to clear the debt. The lien holder isn’t waiting for any other events to take place to clear the lien.
Partial Lien Releases and Subordinations
A partial release occurs when the lien holder agrees to release some of your property from a lien. A partial release is often the result of a partial payment. If, for example, you owe a contractor $10,000, they may put a lien on your property for the $10,000. If you pay them $5,000, they may partially release the lien. The partial release essentially lowers the lien value to the $5,000 you still owe but releases the part you paid.
In some cases, more than one lender has the ability to place a lien. In this case, the lien holders prioritize themselves in a process called subordination. For instance, say you took out a second mortgage on your home but now wish to refinance your first mortgage. When that happens, your first mortgage gets paid off and closed, making your second mortgage the new "first" mortgage. As a result, a lien on your second mortgage becomes the primary lien. The lien on your newly refinanced mortgage is now subordinate to the second mortgage. In the event of a default, the first lien holder receives payment first. Subordinate lien holders receive payment only if there is any money left after selling or seizing an asset.
- California Department of Consumer Affairs: What is a Mechanics Lien?
- IRS: Understanding a Federal Tax Lien
- California Franchise Tax Board: Partial Release of Lien and Subordination of a Lien
- National Lien & Bond: What is a Partial Waiver of Lien and How Can it Affect You?
- Investopedia: Subordination Agreement
- Does Having a Tax Debt Levied Against You Affect Your Credit Score?
- Can Liens Be Upheld on a Warranty Deed?
- What Is a Mortgage Lien?
- If You Buy a Foreclosure House With a Lien, Can the Bank Come After You?
- How Badly Does a Lien Affect Your Credit?
- Settling a Judgment for Less Than Owed
- Mortgage Foreclosure and Mechanic's Liens in Florida
- Steps in Fighting a Lien