What Is a Home Lien?

Home lien is a term for a legal claim placed on a home. Lenders place a lien on a property as collateral to secure mortgage loans to homebuyers.

If you have a mortgage, then you have a lien on your house. This is a claim that gives the bank that financed your loan a legal right to your property if you ever default on your payments.

Key Takeaways

  • A home lien is a claim or legal right against a property that is used as collateral to satisfy a mortgage loan.
  • If the mortgage obligation is not satisfied, the lender may be able to seize the home that is the subject of the lien.
  • Liens can be put in place by financial institutions, governments, and small businesses. 


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Hypothecation Definition

Understanding Home Liens

A home lien is the legal claim on physical property by a creditor. If a mortgage lender, the federal government, or anyone who has legal interest in the property places a lien on a home, the lien enters the public record in the county where the property is located. When a home lien is placed on a property, it is more difficult to sell the home, obtain a mortgage, or refinance the property. When the homeowner meets the outstanding financial obligations, the lien will be lifted, and the owner will more easily be able to sell or refinance the home.

Individuals shopping for a home should pay special attention to the property, double-checking the records for a home lien. A lien can delay the home buying process, and any existing lien can make it difficult for the potential homebuyer to qualify for refinancing. It is important to check the public record for a piece of property in order to see if it is encumbered.

Even if the financial obligation causing the home lien has been taken care of, the public record may sometimes be out of date. If a bank or lending institution sees the history of a home lien on a public record, there is a higher probability of that institution delaying the purchase until they ensure the property is fiscally sound.

The most common forms of liens on a home include tax liens, mechanic's liens, and judgment liens. A tax lien can lead to a sheriff's sale of the property.

Homeowners, Creditors, and Home Liens

As the legal right granted by the owner of property, a lien serves to guarantee an underlying obligation, like a mortgage. For example, an individual takes out a mortgage in order to purchase a new home. The individual, in order to receive the loan from the bank, pledges their home as collateral. That bank now has a lien on the home, or a legal right to take the home if the individual does not pay their monthly mortgage. The individual is now the homeowner, but if they default on their mortgage, the bank has the legal right to sell the home.

Now if the homeowner wants to sell the house, in order to pay off the debt they need the consent of the bank or lien holder. If the homeowner cannot meet the terms of the mortgage contract, and pay the loan, the bank can begin the foreclosure process.

Types of Home Liens

There are several different types of home lien. Specific liens are attached to one particular asset, such as a specific address.

Liens can also be voluntary or involuntary (aka consensual or nonconsensual). A bank takes out a lien when a borrower is advanced a mortgage, making this a voluntary lien. For involuntary liens, a creditor may seek legal recourse by filing a lien with a county or state agency if a borrower defaults on a loan or other financial obligation. Liens can be placed by a contractor, a government agency, or another kind of creditor.

Tax Lien

This type of lien is put on your property by a government agency for any unpaid income taxes, business taxes, or property taxes.

For example, the Internal Revenue Service (IRS) may place a lien on your home if you have unpaid federal taxes.1 First, the agency informs you in writing about your obligations. If you don’t reply, or if you fail to make suitable arrangements to pay off the debt, the IRS may then place a lien on your home or other assets. The only way to release this kind of lien is by paying the outstanding debt.

General Judgment Lien

This type of lien is granted to a creditor after a court rules in the creditor’s favor. When a debtor fails to meet their financial obligations, the creditor may decide to sue the debtor in court for any outstanding balance that remains.

If the court rules in the creditor’s favor, they must record the lien through the county or appropriate recording agency. This gives the filer the right to take possession of a piece of property—real or personal—if the debtor doesn’t come to an agreement to pay off the debt. Property may include things like a business, personal property, real estate, vehicles, or any other type of asset that satisfies the court judgment.

Mechanic’s Lien

When a property owner fails or refuses to pay for completed work or supplies, then construction companies, builders, and contractors may file a mechanic’s lien, also known as a property or construction lien.

This legal document allows entities to get compensated when there are payment issues that may result from a breach of contract. Most contractors and other businesses send the debtor a request for payment and a notice of intent before they file this type of lien.

They may proceed if the debtor still refuses to settle. This requires filing paperwork with the county or appropriate local agency with details about the property, the type of work done, and how much is owed. The lienholder may choose to enforce the lien if the debtor still refuses to settle.