3 Different Kinds of Involuntary Real Estate Liens

If you are new to the real estate industry, the concept of a lien probably isn’t very clear. Sure, you know it isn’t a good thing, but you probably don’t know the specifics. The general concept of a lien is using a piece of property as collateral for a debt. If the money isn’t paid back, the estate can be sold to raise the necessary funds.

There are a wide range of involuntary liens that can be placed upon a piece of real estate. These can be highly technical as far as priority of payback, time to resolve, and lengths of enforcement.

Judgement Liens

When a lawsuit results in a money judgement, the winner of the case can place a lien on the debtor’s property by “docketing the judgement”. Docketing the judgement means filing the settlement documents with the county clerk where the debtor’s assets reside. This is going to place a lien on all real property located in that area. It will also be placed on any new property assets acquired by the person in question until the debt is repaid. If the individual has real estate interests in different counties, you would need to docket the judgement in those courts as well. You can do this in as many different locations as needed.

Judgement liens are enforceable through “execution”. Execution is the process of requesting the district court to order the sheriff to sell the property at a public auction. These kinds of liens can be executed for 8 years after the original judgement was handed down.

Judgement liens are also what’s used when a person defaults on a mortgage. If the lender isn’t getting paid, they would simply take the case to the district court, and request a formal judgement. If the debt isn’t resolved after a certain period of time, the property would be sold at a sheriff sale as mentioned above.

Mechanic’s Liens

People providing a service or materials to improve property need a way to make sure they get paid. This was the reason they came up with mechanic’s liens. The general idea is if the laborers or material providers don’t get paid, they can file for a lien agains the property. If the debt isn’t cured after a certain period of time, the asset will be sold to raise the money. The groups of people that might file this kind of lien are laborers, architects, engineers, surveyors, subcontractors, contractors, and material suppliers.

If there are several different liens, the law needs a way to determine which one will be paid off first. All other kinds of lines take priority according to the date which the case was filed in court. Obviously, the earliest one is superior to the others. Mechanic’s liens are a little different. They take priority according to the date which the work started.

If there are several different groups that started work or provided materials on the same starting date, priority is determined as followed:

  1. Laborers who are paid by the day or hour
  2. Subcontractors and material men
  3. Original contractors

Mechanics liens are enforceable through lawsuit and execution. The groups damaged by the creditor have 180 days from when the notice of lien if filed to submit an action to the court. If it’s any later than that, the statute of limitation will have expired.

Tax Liens

These are the grand daddy of all liens. No matter what, the government is going to get its property taxes. These kinds of liens take priority over all other liens. If the debt isn’t paid within 4 years, the delinquent property will be sold to raise the funds. Its absolutely critical to stay current on all property taxes. If not, the government will stick it to you one way or another.

Residence Lien Recovery Act

This is an important act that protects a property owners from certain mechanic’s liens. The general idea is the property owner can’t have a lien placed on his/her property if the laborers or material providers weren’t paid by the contractor. There are a few important obligations that must be followed to obtain this kind of action.

  1. Real estate owner hired a licensed contractor or entered into a written contract with developer.
  2. Owner must have a written contract with contractor.
  3. Real estate owner has obtained all of the necessary building permits.
  4. Owner paid all fees and obligations as stated in the official contracts.

If a property owner obtains protection from mechanic’s liens, the Residence Lien Recovery Act will kick in. This will pay the damaged parties the monies they are owed.

Conclusion

If you are purchasing any kind of real property, it’s essential there aren’t hidden liens. These can be passed to the new party if they aren’t spotted before the purchase. Its important to work with a good title company when making any kind of real estate investment. They will research the history of the estate, and make sure there aren’t judgements that need to be paid.