What does it mean to have a lien on your home?

When it comes to your home, lien is one of many words that you probably don't want attached to it. Having a lien on your house isn't positive, but it doesn't signal the end of the world if you understand what it is and how to remove it. 

What are liens?

When you have an unpaid debt, the creditor can collect the collateral involved, whether it be a house, automobile or other asset. The actual lien is a financial document. In regard to real estate, it is filed by the creditor with the local county office. Until the debt is paid and the lien is lifted, there are limitations on what can be done with the property. It cannot be sold or leveraged for a mortgage or home equity loan.

If the debt cannot be repaid, the creditor generally has the right to sell the property. This is typically done through a foreclosure sale. However, most creditors won't do so because they'll have to pay off whatever balance is left on your mortgage or else lose the home.

What are some types of liens?

There are various reasons why a creditor could lay claim to your home. Here are a few:

• Mechanics lien: Let's imagine that you bought a vacant home. You got a low price, though the home inspection revealed some issues that needed to be repaired. After hiring a contractor and beginning the renovations, the repairs became more expensive than you expected, and you couldn't pay off the debt for the completed work. That contractor or any other repair person, including plumbers, carpenters and so forth, can place a lien on the home.
• Tax lien: If you're behind on your local, state or federal taxes, the IRS can file a lien for your house and other assets, such as bank accounts and vehicles.
• Judgment lien: This occurs when creditors file a lawsuit against you and the judge rules in their favor.

How are liens removed?

Besides paying off the debt, you can negotiate with your creditor to have a lien lifted. If litigation is involved, this could include the option to pay a settlement amount, which will be less than the outstanding balance but will need to be paid all at once. After an agreement has been reached, make sure that you obtain a letter of satisfaction from the creditor. This will need to be filed with the county clerk.