Purchasing homes and other assets are now easier through loans; however, you should take caution of the legal right of the lender to repossess the property, which accrues by registration of liens on the property purchased. If this is your first time hearing the term ‘lien’ or your home, car or other assets have liens, then it is time for your doubts to end. This blog breaks down the term by explaining the types, when, how and who you can file a lien against. The paper also introduces you to our blogs and articles to assist you in understanding well. 

Introduction

It is globally known that whenever a person borrows a loan to purchase property or purchases an asset under a loan agreement with a bank or any other institution, the lender will place a lien on the asset or property. This begets the question, what is a lien? The work of a lien is to ensure that a creditor obtains the right to the property if a borrower fails to meet his legal or financial obligations, the grantor/the owner of the property is called the lienee while the party that receives the lien is referred to as the lienor or lien holder.

For instance, if Ahmed wants to buy a new house worth $400,000 and to facilitate the purchase he borrows a loan of the same amount from Kenya Commercial Bank (KCB), KCB will need to guarantee the repayment. It will therefore require Ahmed to provide the house as collateral for the loan. KCB will file the document with the relevant government agency to register a lien, and if it is for a fixture, it is created according to state real property law.

This will allow KCB to hold the house as collateral and to serve as a security in case Ahmed fails to honour the repayment of the loan. If he fails to, KCB will have the right to take possession of the house, and it can exercise its right of sale to satisfy the obligation under the mortgage agreement.

From the example given, a lien in property law would refer to a charge upon property which secures the payment of debt or satisfaction of duty, the term is of French origin, but its foundational basis as a legal principle traces back to the early Roman where it was first recognized as a property right, so the security instrument on loan borrowed is what creates the lien.

Connect this to 2020 when events like Covid-19 forced lenders to struggle to create economic stability, then ask yourself how you would manage liens during that period.

Types of Liens

Liens can be addressed based on two major categories, that is, general or specific and voluntary or involuntary liens. A general lien is attached to all the assets/property of the borrower. An example is Internal Revenue Service (IRS) tax liens because they have the authority to sell a variety of the borrower’s property to settle the debt. A specific lien is attached to a specific asset/property offered as collateral in exchange for the loan credit, such as a mortgage.

The second category, voluntary lien, covers that an individual uses their property to secure a loan, so the loan securing the property becomes a voluntary lien. Involuntary lien refers to liens attached to property without the owner’s consent, like municipal liens in Florida, which are imposed according to chapters 159 and 170 of Florida Statutes.

Tax lien

These are involuntary liens imposed by state or federal statutes. They can also be defined as a legal claim that a local or municipal government places on an individual’s real property when the owner has failed to pay the property tax debt and the municipality or the IRS may seize your property to recover tax debt. Tax liens cover income, business and property taxes, which are usually attached to the property to ensure they get paid first.

Judgment lien

This is attached to your property by the court when a creditor files a lawsuit against you and wins the court judgment. This type of lien varies from state to state, primarily based on the laws like the Texas Property Code. Mostly this provides the method through which your property can be sold or seized to satisfy the debt.

Mortgage lien

When you take a home loan, the lender attaches a lien to your real property until you pay off the loan, the lender will have a legal right to take possession of the house if you fail to repay your loan.

Mechanic lien

This is also called a construction lien, attached to your property by an unpaid contractor. Ideally, the contractor can impose a lien on your property and sue to enforce the lien. Material suppliers can also attach a lien to your property as a security interest. You cannot sell that property until you settle the lien claim by paying the material supplier or the contractor. For public projects, the unpaid party can recover payment by filing a bond claim, use the chance and get paid through the expertise of the LegaMart team.

Uniform Commercial Code (UCC) lien

This set of uniform laws governs commercial transactions in every state and across state lines. So if someone lends you money, they can submit the UCC filing, known as UCC lien, with the secretary of state, which puts a legal claim on your personal or real property until you pay off the debt. The debt is mainly from a loan taken but not for purchasing a specific asset. This type also belongs to the voluntary and specific category.

Procedure for filing a lien

Filing a lien is a complex process that must be approached with caution, and therefore one should first exhaust all the available options, including approaching the debtor for a payment plan, before following the below steps;

Notify the debtor: This should be done within the required time per the state rules, and first, you should make sure you have the right to file.

Review the state’s deadline: Most states, like Louisiana, give only 60 days from when the work was done for one to file a lien.

Conduct research on the property: This is to help you to know the actual owner and to understand the presence of any liens which may take priority. This will assist you in having the legal description of the property.

Draft the lien: This should mostly be one page containing the creditors, the debtors and the property details. Here it is essential to seek the advice of an attorney on the state rules as more documents might be required.

File the lien: This should be done in the country where the property is located, followed by a notice to all those included. 

Enforcement: This follows if the debt hasn’t been paid after filing and will see the debtor’s property being sold to settle the debts; the enforcement is by filing a foreclosure lawsuit.

Who can you file a lien against?

A lien can be filed against assets, business property, vehicle or a newly purchased asset to secure the repayment of money owed or as a construction lien against the property of a person who hired you as a contractor.

Who can file a lien?

Any person can file a lien against a debtor to secure the repayment of money owed, like a contractor who hasn’t been paid or a winner of judgment for money owed can also file a lien.

Get help with filing a lien

Raise your concerns and questions on how to file a lien and get the quickest answer from our +2000 lawyers from LegaMart, who provide high-quality and affordable legal services from 100+ countries globally. You can also check the articles posted on our website for more simplified and free legal advice to understand lien waivers and releases. Reach out today and secure your lien rights.