A consensual lien arises when a debtor consents to a lien, such as with a loan or an advancement of a line of credit. A consensual lien agreement differs from statutory liens or judgments because, with those types of liens, a debtor did not consent to the lien. However, the creditor had a legal right to recover the debt.
In cases where an individual agrees to a consensual lien, there may be various consensual lien forms they may be required to fill out. An individual should consult with an attorney prior to signing any type of paperwork related to a lien.
What Is a Property Lien?
A real estate lien is the right to retain possession of a property that belongs to another individual until that individual has paid off a debt that they owe. Liens are created when individuals use their land as a security interest or collateral to secure loans or debts.
For example, Bob owns a piece of land outside of town. When his car breaks down, and he has to buy a new one, instead of getting an automobile loan, he uses his land as collateral at the bank for a personal loan so he can purchase the vehicle.
The bank that issued the loan does not own Bob’s land, and Bob can still use his land as any owner would. However, he is not able to sell or transfer his land until his loan is paid off in full.
In some situations, a lien will automatically attach to the land. In many cases, however, the creditor is required to go through the legal system through the process of attaching a lien.
The bank that provided Bob with the loan may take and sell his property if he cannot make his scheduled loan payments. In addition, if Bob refinances or sells his property with the lien still attached, the bank has the right to be paid out of the proceeds from the transaction.
What Are the Different Types of Property Liens?
There are three main categories of liens, including:
- Consensual: A consensual lien arises when a debtor consents to the lien, for example, with a loan or an advancement of a line of credit. Consensual liens also include purchase money security interest liens, in which creditors lend money to debtors to buy a property, and non-purchase money security interest liens, in which debtors put up a property they own to secure a debt;
- Statutory: Statutory liens are obtained under state laws or federal laws. This means that the lien is authorized by a statute for delinquent payments;
- With a statutory lien, a debtor does not consent to a lien. However, the creditor has a legal right to recover the debt they are owed regardless of whether or not they have the debtor’s consent;
- This type of lien may be used if an individual fails to pay their taxes.
- Judgment: A judgment is a type of lien in which a creditor can obtain the title to the debtor’s property if the debtor fails to make the necessary payments under a court order
- Judgment liens, also called judicial liens, are usually obtained in connection with a final judgment issued in a lawsuit between the debtor and the creditor;
- If a debtor does not make the required payments, a court will certify the judicial lien and the debtor will forfeit their property;
- The property will then be put up for sale, and the proceeds will go towards the debt that is owed to the creditor.
What Are the Different Types of Consensual Liens?
There are two main categories of consensual liens. The first is called a purchase-money security interest lien.
With this type of lien, a creditor lends money to a debtor for the specific purpose of purchasing the property that will secure the debt. One example of a purchase-money security interest lien is a mortgage on a home.
The second category of consensual lien is a non-purchase-money security interest lien. With this type of lien, a debtor puts up property that they already own to secure the debt.
The debtor will then be able to use the loan to pay for whatever they need. One example of a non-purchase-money security interests lien is a second mortgage on a home that the debtor owns.
What Happens When There Is a Lien on My Property?
Prior to a lien being placed on a property, a creditor has to go to court and present evidence of the unpaid debt. The creditor can file a lien on the property if a judgment is granted. This is done by registering the judgment with the county land records office in the county where the property is located. The lien is then included with the title records of the property.
Once a lien is filed, it will specify the amount that is owed and grant a creditor the right to be paid if the property is sold. The debtor is not able to get around the lien and sell their property without paying it off because it will be shown in the title record.
As previously discussed, a creditor may take possession of the property under certain circumstances if the debt is not paid off within a certain time. If the debt is not paid, the creditor may be able to foreclose on the property.
How Do I Find Out if My Property Has a Lien?
In order for an individual to determine whether a lien has been placed on their property, they can perform a title search. The individual can hire a company to complete this process.
Clear title will be required before an individual can sell or refinance their property. Because of this, it is important for an individual to insist that the creditor remove a lien once their debt has been satisfied so they can sell the property when they want to.
It is important to note that there are limitations on property liens. There are many states that have homestead exemption laws that protect an individual’s home from being claimed by a creditor. This is true even if they do not have enough assets to satisfy the creditor’s claim.
Homestead exemptions are provided to ensure that debtors and their families are able to protect the equity interest they have in their homes from being taken by creditors after declaring bankruptcy.
How Do You Remove a Lien From Your Property?
Removing a lien from a property can be a complicated process. There are, however, several options for an individual to consider, including:
- Satisfying the debt: Once an individual satisfies their debt, they can file a release of lien form;
- Obtaining a court order removing the lien: This may be an option if the lien was obtained through fraud, coercion, bad faith, or some other illegal means;
- However, this can be difficult to prove, so it is important to have clear proof of the improper behavior;
- Filing for Chapter 7 bankruptcy: An individual can file for bankruptcy to remove the lien. This option can only be used with certain liens, such as judicial liens, and may only be enforceable for a limited amount of time;
- Privately negotiating with the creditor: If both parties agree, it may be possible to work out a settlement through arbitration, mediation, or informal negotiations; and
- Waiting for the statute of limitations to run out: A state will have its own laws that limit how long a lien is valid and how long a creditor has to file a suit once the debtor defaults. Once this time requirement has passed, the lien may be removed.
Do I Need a Lawyer for Assistance With Consensual Liens?
If you have any issues, questions, or concerns related to consensual property liens, it is important to consult with a credit lawyer. Your credit lawyer can help protect your rights.
If you do have to go to court for any reason, your lawyer will help you through the legal process. If you have a lien on your property that you want removed, your lawyer can help.
There may be specific rules in your state regarding property liens and statutes of limitations that your lawyer can inform you of. Your lawyer will be able to review the lien, provide you with advice regarding the best course of action, and help you complete the process.
