What Is a Mortgage Lien?

A mortgage lien is a form of conditional ownership of your property claimed by your home loan provider. Since your lender has a claim on your home, you need to keep up with your payment obligations or risk losing your property to foreclosure. When you complete your repayment commitment as set out in your mortgage contract, the lien goes away and you own your home free and clear.

TL;DR (Too Long; Didn't Read)

A mortgage lien is a claim to the property in the event that the mortgage holder does not pay the mortgage in full. It also prevents the sale of the home unless the mortgage has been satisfied.

Purpose of a Mortgage Lien

When you get a home loan, you agree to repay the principal loan amount, plus interest, over a specific period. A mortgage lien gives your lender the best financial recourse if you fail to pay off your debts. Your lender can charge you late fees as one way to penalize missed payments. The lien, though, offers the strongest protection as it puts pressure on you to pay your bills or risk losing your home.

Property Deed

A property deed is the official ownership record for your home. A lien is a claim made against the property. When you buy your home, a title company reviews the property to determine what outstanding liens need resolved so you can purchase a home with a clean title. Homes are often sold before the mortgage is paid in full. In this case, the mortgage lien is usually resolved when you close the sale and the buyers' funds are used to pay for your existing mortgage. This removes your lien and they take on one of their own.

Foreclosure Risk

Mortgage liens usually work out in one of two ways. You either repay the debt over time or at a sale, or the lender forecloses on your property because you fail to make your payments. Foreclosure is the legal process a lender goes through to take your home based on the terms of your contract. Foreclosure typically begins once you have missed several payments and been officially warned in writing. Once foreclosure hits, you either repay the entire loan or lose your property.

Other Liens

A mortgage lien has primary position as a claim against your property. Other companies may place a lien on your property if you do not pay for services performed on the property. Construction companies, mechanics and electricians that participate in construction and repair may place a lien for unpaid services. This gives them legal claim to money earned from the property unless you pay them beforehand.

These nonmortgage liens are subordinate to your mortgage. Thus, these companies only get money if foreclosure leaves extra funds beyond what you owe your mortgage lender. Title companies search for property liens before a sale as they get in the way of a clean sale and lenders will not go through with your loan.

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