A lien is a public record filed with a county or state agency that is a common way for creditors to collect what is owed to them. A lien limits what the owner of the asset can do with the property, as creditors are given a stake in the asset in compensation for whatever is owed to them.

What a Lien on Your House Means

A lien on a house indicates that a creditor has not been paid. There are multiple types of liens based on who the creditor is or what type of debt is owed. For example, a house lien by the Internal Revenue Service indicates a debt of federal income taxes. A county can assess a house lien if property taxes have not been paid. A general judgment lien means that a general creditor has been awarded a lien due to unfilled debt payments. Finally, a mechanic’s lien by a contractor means the contractor has a right to property that has been worked on if no payment has been received. A mechanic’s lien protects contractors from not receiving payment after the work has been completed.

Reasons a Lien Is Good/Bad

In general, a lien against property is bad for the owner of the house. A lien indicates that debts have gone unfilled and legal matters have been taken into account. Although a lien does not mean the property has transferred title, it is a step in that direction. On the other hand, a lien is beneficial for creditors or industrial workers, such as contractors, as it is a method of protecting the rights of these individuals by ensuring that they receive compensation.

Legal and Financial Repercussions in Worst-Case Scenario

The worst-case scenario for a lien is that it does not get settled. In this case, especially for unpaid property taxes, the most likely outcome is that the property can be seized. This is not the most common occurrence, as a lien holder is most likely to refrain from foreclosure in favor of waiting until the debt is settled or the property is sold.

Who Should/Shouldn’t Have a House Lien

A lien is intended to protect a creditor and ensure a debtor settles his obligations. Therefore, a lien should be placed on property in which collection has been attempted, communication to the debtor has been made and no progress has been achieved in settling the debt. A debtor that has not been keeping up with debts as they come due should have a lien on some of his assets. Alternatively, if reasonable steps have been made to fulfill an obligation or an alternative payment plan has been agreed upon and adhered to, the debtor in these situations should not be constrained by a lien on his property.

How to Get Rid of a Lien

There are multiple ways for a lien to be removed from a house. The first way is to settle the lien with the lien holder. The settlement process depends on the type of lien, who the lien holder is and the dollar amount of the lien. In some cases, a lien holder agrees to remove the lien upon the development of a payment plan.

A lien is tied to a piece of property, not the property holder. For this reason, a property holder can be free of a lien by selling the asset to which the lien is tied. However, there are a couple of unfavorable factors in this option. First, a lien holder expects to receive compensation upon the sale of property. The seller of the house receives all the money from the sale, but he is expected to pay his debt owed to the lien holder. Additionally, the owner of the house may find it difficult to sell property with a lien on it. Prospective homebuyers are not likely to purchase the property, knowing that someone else has a claim to the asset.