When someone takes out a loan to make a large purchase, they usually have to put something up as collateral to secure the loan. This is a secured creditor situation; real estate is the most common asset. This gives the creditor a legal claim by placing a lien on the property so that if you don’t make your payments, they can collect what is owed by filing the lien and having the property sold to recover the amount owing.
This common practice usually goes without a hitch unless a payment default exists. Some liens are usable for collateral, while others can be enforced through your municipality based on other factors. They may become tax sales properties depending on the regulations.
Here are the types of liens in real estate that may affect you.
Type #1: General Liens
These types of liens are applied to all types of property the debtor owns. As real estate is usually the largest asset someone owns, it is put in place there.
Type #2: Specific Liens
A specific lien applies to only one asset, and a lender places it there. If your investment property has a lien, they are not entitled to come for your primary residence.
Type #3: Voluntary Liens
These are liens that you willingly accept, like a mortgage lien when you are financing a home.
Type #4: Involuntary Lien
An involuntary lien is levied against your wishes and puts on the property to recover the debt.
Type #5: Mortgage Lien
A mortgage lien is the most direct real estate lien because it is tied to your mortgage payments. If you get overdue payments for several months, your lender has the legal right to seize and sell your home or property to recuperate their loss.
The house cannot be sold without a lien, so you must settle the debt first to put your home on the market.
Type #6: Condo Lien
A condo lien is also tied to the property you own, but in this case, the lien is placed on the condo because of a default in condo fees, special assessments or fines. Before a lien can be placed on the property, a notice of lien must be sent to the unit owner, and then a short period, usually ten days, is given to repay the amount secured by the lien. This can also include collection expenses, interest and legal costs.
Type #7: Tax Lien
We are all required to pay taxes based on our income, and if you fail to do so, CRA has the right to put a lien on any real estate you own. Before this happens, you will get a “certificate of arrears” that must be followed up on, and it will stay in place until the debt is paid or the property is sold. CRA doesn’t need any permission to place the lien on your home.
Type #8: Builder’s Lien
This is sometimes called a mechanic’s lien, but it refers to when an individual or company does construction on your home and is owed for the work and materials. If the homeowner refuses to pay, the builder can place a lien on the property, and then it cannot be sold or possibly refinanced until the debt is paid.
Type #9: Attachment Lien
If you have an ongoing legal matter, this lien can bar you from selling your property by placing a lien on it. It is used for situations like:
Type #10: Writs of Execution
Where a lien is a debt secured against the debtor’s personal property, a writ is an act that orders payment. If a court has made an order of payment, the person you owe can get a writ of execution to seize your property and sell it to pay off the debt. This is done through a sheriff.
Type #11: Notice of Security Interest
A NOSI is a registered lien against any equipment installed in your home like as:
- Air filtration
- Water softener
- Smart home system
If you have a company that has installed these types of in-home services and equipment, they may put a lien on the residence if you fail to pay. Sometimes it is a rent-to-own contract rather than a standard rental for equipment and allows for the NOS to be put in place. While they lean against the installed equipment, it can affect your ability to sell your home or force a sale to repay the debt.
These real estate liens are a fairly common tool for lenders and businesses interested in your property use. Fortunately, they are fairly easy to resolve, but you must negotiate with the other party and make a satisfactory payment to remove the lien. It may be wise to get legal advice when a lien is placed on your property to protect you.