Mortgage Liens: Defined And Explained

If you used a mortgage to purchase your home, you might already know what a lien is, since you’ll have a lien on your property until you pay off the mortgage loan.

Though it might sound like some complex legal jargon, a lien is essentially a legal tool used by those who are owed money to ensure that they’re paid back.

If you used a mortgage to purchase your home, you might already know what a lien is, since you’ll have a lien on your property until you pay off the mortgage loan.

Though it might sound like some complex legal jargon, a lien is essentially a legal tool used by those who are owed money to ensure that they’re paid back. Let’s take a closer look at exactly what liens are and how they work.

What Is A Lien?

A lien is a legal claim against property that can be used as collateral to repay a debt. Depending on the type of debt owed, liens can be attached to real property, such as a home, or personal property, such as a car or furniture.

For example, mortgages or property tax liens are attached to the real property on which the mortgage or taxes are owed. Personal property such as a car might have a lien on it if the owner is still paying off the auto loan they used to purchase the vehicle. Judgment liens can generally be attached to both real and personal property.

General Vs. Specific Lien

When thinking about liens, it’s important to make a distinction between a general lien and a specific lien.

• General liens: A general lien allows a creditor to seize any and all of your assets to pay a specific debt. For example, if you own a primary residence and a vacation home, the Internal Revenue Service (IRS) can put a general lien on both properties until the debt is paid off.
• Specific liens: A specific lien – like a mortgage – only allows the creditor to seize a property designated in the agreement. If you fail to make payments on your vacation property, your lender can only seize the vacation property and can’t foreclose on your primary residence.

This is part of the reason why mortgages for second homes tend to require a larger down payment and better credit than a mortgage for a primary residence.

Voluntary Vs. Involuntary Liens

Another distinction that should be made when discussing types of liens is voluntary liens versus involuntary liens.

Voluntary liens are permitted by the owner of a property in order to secure a loan. A mortgage agreement is a voluntary lien because the homeowner agrees to grant the lender a lien as part of the terms of the mortgage.

On the other hand, involuntary liens are typically the result of failing to pay someone you owe a debt to. With these types of liens, you don’t have to agree to have the lien recorded on your property.