Buying and selling property might seem like a pretty straightforward transaction. You decide you want to buy the property from the person who owns it, money exchanges hands, and it becomes your property. Real-life situations, though, aren't always that simple. Any time you're thinking of buying a piece of property, you could run into a lien, delaying the process until the lien is dealt with. A vendor or a contractor could also put a lien on property you already own such as your house or your car.
A lien is a type of encumbrance or legal restriction on a piece of property, preventing the title to that property from transferring to a new owner until a debt is paid. When you want to buy a house, the title company performs a title search to find out if there are any encumbrances attached to it. If the title search reveals a lien on the house, you can't complete the purchase until you resolve the lien. Liens are attached to the property, not the person owing the debt, so if you decide not to do a title search before you buy the house, you could end up buying the debt as well. Liens can be either judicial, statutory or consensual. Tax liens and mechanic's liens are found most often. Both are considered statutory liens.
Liens For Unpaid Taxes
When a property owner fails to pay a tax debt, the government can place a tax lien on the property. The lien could originate with the municipal government in the case of property taxes, or with the state or federal government in the case of income taxes. Section 6321 of the Internal Revenue Code gives the federal government the authority to place a lien on all property owned by the debtor for unpaid taxes, fees and interest. You can have a tax lien removed from a property you're trying to buy by either having the seller pay the debt, paying the debt on behalf of the seller, or asking a court to remove the lien.
Liens For Money Owed To Contractors
A mechanic's lien is a lien placed by any contractor for unpaid bills. For example, if the seller of the home hired a contractor to work on his roof and then neglected or was unable to pay him, the contractor could have placed a mechanic's lien on the house to prevent its sale. The only thing you can do to remove a mechanic's lien is to either persuade the seller to pay it or else pay it yourself. The house sale cannot be completed until the debt is paid and the lien removed.
Judicial and Consensual Liens
Most liens on real estate are either tax liens or mechanic's liens, but the title search could also reveal judicial or consensual liens. If the owner of a home loses a lawsuit and cannot afford to pay the judgment, the court can place a judicial lien on the property. If a homeowner borrows money or enters into some other type of debt, he can agree to a consensual lien to use the house as security for the debt. As with other types of liens, the only solution is usually to pay off the debt or have the seller do so.
Other Types of Lien
Many types of property can be affected by a lien. If you ask a mechanic to do some work on your car and then fail to pay him, he can file an artisan's lien on your car to collect the debt. Artisan's liens can also be filed on any other type of property for unpaid repairs. If you buy a laptop computer or a car or any other type of personal property, the company you bought it from can put a vendor's lien on it if you fall behind on your payments. A storage unit can put a warehouseman's lien on the property you're storing with them if you don't pay them on time. These are only a few examples of the wide range of statutory liens you might encounter.
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