Property Liens and Lien Release

When someone is unable or unwilling to pay a debt, or they are in the process of receiving goods or services from a creditor and they want to guarantee payment as soon as the contract is complete, a lien may be placed on physical property to guarantee payment.   If the debt is not satisfied in a reasonable amount of time, the creditor can ask the court to foreclose on the property to pay the debt.  In other cases, the creditor can wait for the debtor to sell the property and pay them out of the proceeds.

Consensual or Non-consensual Liens

A lien may be placed on a person’s real property either voluntarily or involuntarily.

• A consensual, or voluntary, lien is placed on property with the consent of the owner of the property, often by contract.  A mortgage is an example of a consensual lien.
• A non-consensual lien is placed on property when a debtor cannot or will not pay the amount owed and the creditor seeks legal recourse to place a lien on property.  A tax lien is an example of a non-consensual lien

Lien Releases

In order to ensure that the property on which there is a lien is released, there must be an official lien release filed.  In some cases, the debtor must obtain a lien release form (they are available on the internet as a free download), complete the form, and present it to the creditor for their notarized signature.   Once that form is complete, the debtor is released from their lien.  In many cases, like equity mortgages mortgage, the mortgage-holder releases the title to the home or property, which serves as a lien release, and notifies the credit bureaus.

Proving Payment

In most cases, your creditor will acknowledge your final payment with a receipt or escrow title to the property secured by a lien.

Tax Lien Release

In the case of a tax lien, the IRS provides a Certificate of Removal of Tax Lien when payment is made in full or the IRS no longer has any interest in collecting the tax owed.  It often takes 30 days for a Certificate of Removal or Tax Lien to be processed, but at that point the debtor can send copies of that document the credit bureaus, if necessary, to clear their credit record.

Adjusting a Lien

In some cases, there is a need to alter the terms of a lien, which may require a partial lien release or subordination of the lien.

• A partial lien release occurs when a contract has been overstated, resulting in a smaller debt, and the lien holder must modify the lien to reflect these new terms.  In other situations, a property owner needs to sell property with a lien, but the property’s value will not satisfy the lien.  In this case, the lien-holder may agree to a partial release on the smaller property.
• Subordination occurs when the priority of a lien changes.  This can occur when the commercial property business owner must refinance their property and a lien-holder may have to move to a lower priority until the other debts can be repaid.

Liens can be complex legal encumbrances that damage the credit and sometimes even job opportunities of a debtor.  At times, it may mean restructuring debt, negotiating with a number of commercial property agents, or locating important proof of payment documents that are not readily available.  A real estate attorney can provide the expertise to guide you through the process so that your rights are protected and you credit rating is restored.