Definition:
A lien is a legal claim against a property that must be paid off before the property can be sold or refinanced. It is typically placed by a creditor when the property owner owes money.
Example:
Tom has unpaid property taxes, and the county places a tax lien on his home. When he decides to sell the house, the lien must be paid off at closing before the new buyer can take full ownership.
Explanation:
Liens are used to secure payment of debts. When a lien is placed on a property, it means the owner cannot transfer clear ownership (or title) until the lien is resolved. Common types of liens in real estate include:
- Mortgage liens – from a home loan
- Tax liens – from unpaid property or income taxes
- Mechanic’s liens – from unpaid contractor or repair bills
- Judgment liens – from court-ordered debt
Liens are public records and are discovered during a title search, which is a standard part of any real estate transaction. If a lien is found, it must usually be paid off before the sale can go through. Sometimes, a portion of the sale proceeds is used at closing to clear the debt.
Liens “attach” to the property, not the person. That means a new buyer could unknowingly inherit a lien if it isn’t properly identified and resolved during the sale process.
Why is Lien Important in Real Estate Transactions?
Liens are important because they affect a property’s ability to be sold or refinanced. Buyers, can delay or block a purchase if not resolved. For sellers, clearing liens ensures a smooth closing. Understanding liens protects everyone involved and helps prevent legal or financial complications during the transaction.