All About Liens and Home Loans

A lien is a property right someone else has on your property and gives the lienholder legal power to take your property as compensation if you default on your payments or break the contract terms.

A mortgage is the most common type of property lien. If you don't pay back the home loan, the lender can foreclose on your home in hopes of recouping its investment. Some home remodeling jobs, such as redoing a bathroom, may also place a lien until the work is paid off.

Although it may sound harsh, a lien offers protection and mitigates the risk of a loan, making it possible for lenders to make financing more available. Read on to learn more about liens.

Types Of Liens

Consensual Lien: A lien in which you get something in exchange for the lien on your property. Examples are a mortgage or line of credit.

Nonconsensual Lien: A lien where you don't give consent. This is typically the case with civil judgment or other law enforcement matters and remains until the requirements are satisfied.

Property Lien

With Property liens, your property is the collateral for the loan. So if you default, the lender can take the property to recoup their investment.

With home loans, however, we have to consider something called "lien position." The home loan you take out when you first financed your home is the primary loan. However, if you take out a second mortgage, you would now have a second lien next in line.

Should you default on your mortgage payments, the primary lien holder would be paid first, then the second lienholder, and so on. Because of this hierarchy, second mortgages are considered riskier and usually have a higher interest rate. For this reason, it's often better to refinance your primary mortgage rather than get a second.

Tax Lien

The government can place a lien on your property (real estate, car, boat, etc.) if you have unpaid taxes, and it can affect your ability to qualify for credit until it's cleared.

Mechanic's Liens

In this situation, a lien is placed on your property if you owe money for work they completed. Note that not all states allow for mechanic's liens.

Judgment Liens

A lien may be placed on your property in jurisdiction disputes. However, once the judgment is satisfied, the lien can be removed.

How To Get A Lien Removed

Pay off the loan.
Negotiate with the lender: Negotiate with the lender. They may be okay with taking less than the total amount for a payoff!

Sometimes a lien may not apply to the current property holder, but it still shows up on the title. Here are two things you can do should that happen:

Contact the lienholder to correct it.
Dispute the lien claim. This should be a last resort, as getting into a legal dispute could be costly. Consult an attorney if you go this route.

Now that you understand the basics of liens, you can move forward with more confidence in your property purchases. Ready to explore your home loan options? Contact us today for personalized guidance.

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