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Liens can help you
…or they can hurt you!

Liens are rights to collect a debt.



If you loan a 100 bucks to a friend with nothing to secure it, there is very little recourse for you to get that money back… except, off course, that person’s conscious.

When you use you credit card to buy a lawn mower they expect you to pay back, you promise to pay back and I am quite sure that you are a good citizen you have all the intention to do so…

But there is nothing to “secure” the debt. They may report you to the credit bureaus and it definitely cost you points in your credit scores in the event you miss a payment – and they can do it up to the last dollar you owe, but they will not come after you to recover that lawn mower.

However, there are many circumstances where the debt can be secured by a lien: motor vehicle and real estate are the examples that you probably would be entirely aware of.


What are Liens?

They are encumbrances - claims - on a property; they are securities to debts or obligations that must to be satisfied [paid].

It is a monetary claim a creditor has on a property of the debtor whereby the debtor's property is made “security” for payment of the debt - thus the expression “secure debt.”

Major credit purchases such as cars, boats are made “secure” via a lien. The current owner cannot sell the item unless payment is first made whole.

A real estate property is made secure via a special one called “mortgage”

Most credit cards are “unsecure” debts. This is to say that the lender has nothing to come after if borrower defaults.


Different "Flavors"

They come in different “flavors” as you can see below, but for a moment let’s examine the most import one that is generated via the lender.

Those are originated “voluntarily” when you sign to buy a home or a motor vehicle.

The ones you should be more concerned with are the “involuntarily” ones or judgments created by actions of the law like unpaid taxes.


You also can have “involuntarily” liens or judgments created by actions of the law: e.g., mechanic’s or tax lien. Please read more below.

If you have financed a property like a home, car or boat, you will have the rights of “possession,” “control” and “enjoyment” of “your” home, car or boat but until the very last scheduled payment the lender has a firm legal grip on the right of “disposition” (sale) of those properties.

As we have examined in the “bundle of rights” page, the rights can be separated in a temporally or permanent basis.

This is one of those instances: you are “temporarily” deprived of your right of “disposition.”


Practical Consequences

The significance of it is that you cannot market [sell], neither it can be inherited out right nor can it be donated or otherwise dispose of that asset before the balance due is cleared with the lender.

I think that is fair: The lender gives you the money to buy an asset that otherwise you would not be able to “posses,” “control” and “enjoy.”

Bottom line, if you come to think about it, you acquired all those rights with somebody else’s money and all they ask is “take good care of the property and pay us back.”

If you keep making the payments timely and maintain the property under your ownership, everything is running as it was designed to be.

However – up to the last payment – you still do not have secured the right of disposition: Before the property can be sold, donated or even inherited the debt has to be satisfied.

This means when you sell your home or motor vehicle, the lender would have claim on the proceeds of the sale to the extent that their outstanding balance is satisfied in full.

Please see below that not all liens are originated with a lender, it also can be brought up via a judgment.

If the amount owed would ever be more than the amount of equity in the property, then the lien may prevent the debtor [owner] from selling or refinancing until the debtor can pay off the outstanding debt.


Be Aware Of Your State Practices

Every state has its own rules about how this matter affects property.

Should you have a judgment against your property, you should promptly review your state’s law with someone knowledgeable – preferably with a lawyer, to bring yourself to speed what the lender can and cannot do to enforce such judgment.

Do pay special attention to property tax if you are late, it can be target for a judgment. Although it can take a year or two for taxman to come knocking.

In any case, the day the judgment is paid in full, you will be again be united with that right that has been away from your for a while: The right of disposition.

It can take 30 years – as it is the case of financing of most homes… but that right will be there, waiting for at end of the rainbow!

And your government, alleluia, supports you!

Among the many liens, you have "mortgages" that make it possible to millions of folks of all walks of life - to buy a home and pay in affordable monthly payments. To read more, please click here


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JC Fagundes, Associate Broker
EQUAL SERVICE TO ALL.
Residential. Commercial. Investments.



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