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A lien is a legal claim against property that secures payment of a debt. An encumbrance is any claim, restriction, or interest that affects title. Both can impact the ability to sell, refinance, or transfer property. Liens must typically be resolved before clear title can pass to a new owner.

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Types of Liens

Voluntary lien created when borrowing to purchase or refinance. Lender holds claim until loan is paid off.Paid from sale proceeds at closing. Most common lien on residential property.
Government claim for unpaid property taxes. Takes priority over most other liens, including mortgages.Can result in tax sale if unpaid. Must be cleared for sale to close.
Claim by contractors, subcontractors, or suppliers who provided labor or materials but weren’t paid.Filing deadlines and requirements vary by state. Can be filed even if homeowner paid general contractor who didn’t pay subs.
Court-ordered claim resulting from lawsuit. Creditor wins judgment and records it against debtor’s property.Attaches to all property owned in the county where recorded.
Claim for unpaid homeowners association dues, fees, or assessments. HOA can foreclose in some states.Priority varies by state. Some states give HOA liens super-priority over mortgages for limited amounts.
Government claim for unpaid income taxes. Federal tax liens attach to all property owned.Can complicate sales and refinances. IRS may need to subordinate or release for transactions.
Claim for unpaid child support obligations. Recorded by state agencies.Must be satisfied or payment arranged before clear title transfers.

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Types of Encumbrances

Encumbrances beyond liens can also affect property rights.
Right for someone else to use part of the property. Common examples:
  • Utility easements (power lines, sewer access)
  • Access easements (neighbor’s driveway crosses property)
  • Conservation easements (restrictions on development)
Run with the land and bind future owners.
Limitations placed on property use by previous owner or developer. May restrict:
  • Building size or style
  • Commercial activity
  • Certain uses (no livestock, no RVs)
Enforceable by neighbors or HOA even decades later.
Physical intrusion onto neighboring property. Fence, building, or structure crosses property line.May require removal, agreement, or purchase of affected land.
Notice of pending litigation affecting property. Warns potential buyers that lawsuit may affect title.Not a lien itself but signals potential future claims.

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Lien Priority

When multiple liens exist, priority determines who gets paid first from sale proceeds. General priority order:
  1. Property tax liens (highest priority)
  2. First mortgage
  3. Second mortgage/HELOC
  4. Mechanic’s liens (timing varies by state)
  5. Judgment liens (by recording date)
  6. Other liens (by recording date)
Priority matters when proceeds don’t cover all debts. Higher priority liens get paid first. Lower priority may receive partial payment or nothing.

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How Liens Are Discovered

Title search: Title company examines public records before closing. Identifies recorded liens, judgments, and encumbrances. Preliminary title report: Issued before closing, lists all discovered liens and exceptions. Review carefully. Owner’s knowledge: Owners may know about debts but not realize liens were recorded. Unpaid contractors, old judgments, or tax issues may surface.

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Resolving Liens Before Sale

Most liens paid directly from sale proceeds at closing. Title company ensures payoff before releasing funds to seller.Works when sale price exceeds total liens.
Seller pays lien before closing, provides release documentation. Common for smaller liens.
Some lien holders accept less than full amount. Judgment creditors or old debts may settle for reduced payment.Get settlement agreement in writing before paying.
If lien was improperly filed or already paid, dispute through legal process. May require court action.Mechanic’s liens have strict filing requirements. Procedural errors can invalidate them.
In some states, contractor liens can be “bonded off” by posting surety bond. Removes lien from property, dispute continues separately.

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Mechanic’s Liens in Detail

Mechanic’s liens create significant complications for homeowners.
Contractor, subcontractor, or supplier provides work or materials and doesn’t get paid. They file lien against property to secure payment.Homeowner can be liable even if they paid general contractor who failed to pay subs.
  • Get lien waivers from all contractors and subs with each payment
  • Use joint checks (payable to contractor and sub)
  • Verify contractor pays subs before final payment
  • Hold retainage until project complete and lien period expires
Mechanic’s liens have strict filing deadlines (varies by state, often 60-90 days after last work). Late filing may invalidate lien.Deadlines for enforcing filed liens also apply (typically 6-12 months).
Paying your contractor doesn’t guarantee lien-free property. If your contractor doesn’t pay subcontractors or suppliers, they can file liens against your home. Always get lien waivers.

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Impact on Transactions

Selling: Liens must be cleared for title to transfer. Buyer’s title insurance won’t cover known liens. Sale may be delayed or cancelled if liens exceed equity. Refinancing: New lender requires clear title or agreement on lien priority. Existing liens may block refinancing. Buying: Title search reveals liens. Don’t close without resolution. Title insurance protects against undiscovered liens, not known ones.

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Removing Liens After Payment

After lien is paid, creditor should provide release or satisfaction document. Owner or title company records this with county. If creditor doesn’t provide release:
  • Request in writing with payment proof
  • Some states allow owner to file affidavit after time period
  • May require court action to clear title
Keep proof of payment for all liens. If lien holder goes out of business or can’t be located, documentation proves debt was satisfied.

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Expired or Invalid Liens

Not all recorded liens are enforceable. May be invalid if:
  • Filing deadline was missed
  • Lien holder didn’t follow required procedures
  • Debt has been paid
  • Statute of limitations expired
  • Lien was fraudulently filed
Clearing invalid liens may require quiet title action or court order. Title companies may require legal resolution before insuring.

Next: HOA Basics

Rules, fees, and governance in managed communities

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