Discharging a Property Lien

A property lien is the legal claim of a creditor against the real property of a debtor. The lien is “attached” to the title to the property to show others that the landowner owes money to a creditor. A court grants a lien. Obtaining a lien is the first step that a creditor takes to seize property, so the property can be sold and the proceeds applied to pay the debt owed to the creditor.

A lien is filed with the registry of deeds of the county in which the property is located. It then becomes a public record that puts everyone on notice of the landowner’s debt and that if the property is sold, the creditor must be paid from the proceeds of the sale.

Often, the debt the landowner owes the creditor comes into existence when the property is purchased. This is because the owner borrowed the money owed to the creditor in order to purchase the property. In other words, the debt is a mortgage loan.

The lien, in part, serves as a way to ensure that the landowner pays the debt they owe. The landowner understands that if they do not pay the debt owed, then the creditor can use the lien to take possession of the property. They would then be able to resell it to recover the funds owed by the landowner.

The mortgage lien is a common lien in residential real property. They are usually placed by mortgage lenders when the borrower fails to make mortgage payments. Regardless of the type of lien placed on the property, all liens are considered legal documents that can be enforced through legal processes.

• Mechanic’s Lien: A general contractor, carpenter, plumber, painter, or other repair company can place a claim on a property on which they work if they have not been paid for their work;
• Judgment Lien: The party who wins an award of money damages in a lawsuit can file a lien on the property of the person who is responsible for paying the judgment if the damages award is not paid. This type of lien can also be placed by an attorney if a client does their bill for legal services. In some states, a landowner is protected from a forced sale of their home by a judgment lien’s forced sale via homesteading;
• Tax Lien: If a person does not pay their federal, state, county, or municipal taxes, the government may file a tax lien on their property, including their home, for the amount owed.

How Does a Property Lien Affect the Property?

Any time a property owner buys real property using the traditional method of mortgage financing, the system ensures that the lender gets repaid. This is because the owners must have a clear title to sell the property. In legal terminology, the landowner’s debt creates a “cloud” on their title.

Before a property can be sold or refinanced, a title search must be done to determine whether there are any encumbrances, such as a lien, on the property. Usually, liens are paid from the proceeds of the sale of the property. That is the purpose of a lien – to ensure that if the property is sold, then the proceeds must be used, at least in part, to pay off any liens on the property.

What Happens If I Cannot Pay My Mortgage?

If a landowner cannot make their monthly mortgage payments, then the lender uses the property lien to secure repayment. The lender can begin the foreclosure process. After the process, the lender sells the property to the highest bidder to recoup the full amount owed under the mortgage loan terms. Of course, the landowner is dispossessed of the property.

The lender also collects any additional equity, which is then turned over to the landowner. So, in other words, if the property sells for more than the amount owed to the lender, the excess is turned over to the owner.

However, if the proceeds of the sale are less than the amount still owed on the mortgage, then the creditor has the right to obtain a deficiency judgment against the landowner. The landowner still owes payment to the lender for the deficit that remains unpaid after the sale and payoff of the mortgage.

Can My Property Lien Be Discharged?

A person who has a lien on their property can discharge the lien. When a property lien is discharged, it no longer appears on the title report or in the records kept by the county recorder’s office. This means that the lien no longer encumbers the property. Therefore, the property has a clear title.

There are three ways to discharge the debt that underlies a lien and remove the lien from the property:

• Discharge by Payment: If a debt is repaid in full (also known as “satisfaction of debt”), the property lien can be discharged. This is generally done in one of two ways. Either the landowner sells the property for more than the amount of the debt and uses the proceeds of the sale to pay the debt. Or, the landowner pays off the debt in full or through monthly payments over time while remaining the property owner.
  • Once the lien is satisfied, and the landowner remains the property owner, the debtor needs to obtain written confirmation from the creditor that the debt has been paid off. They must then file the written confirmation with the county recorder’s office so that title to the property becomes clear and marketable;
• Discharge by Expiration: A property lien may specify that it must be paid off within a specific period of time. Or state law may require this. If that period of time ends before the creditor renews the lien, the lien expires and is no longer an encumbrance on the property. The amount of time that must pass before a lien expires varies according to the laws of each state.
• Discharge by Debt Forgiveness: In very few situations, a creditor may choose not to collect on the debt and relieve the debtor of their obligation to pay off their loan.
  • As with discharge by payment, it is also important that the landowner obtain written confirmation from the creditor as evidence that the debt has in fact been discharged. They must also be sure to file the confirmation with the county recorder’s office to ensure that the title to the property is marketable and clear again.

One other way to discharge a property lien is through a court order. For example, in some kinds of bankruptcy proceedings, a bankruptcy judge may order the discharge of a lien on the property of a bankrupt landowner.

Should I Hire an Attorney to Help Discharge My Property Lien?

The process of discharging a lien can pose several challenges. If it is not done correctly, it could impact the title of a property. Therefore, you must proceed carefully, create a written document of any discharge as proof, and file it with the county recorder’s office as required by the law in your state.

To ensure that all of this is taken care of correctly, you should consult a local real property lawyer for help with the process.

A qualified property lawyer will be able to review any relevant documents. They may be able to help you negotiate a plan to pay off the debt that is related to the lien on your property. They can then help you prepare any paperwork necessary for a lien discharge and ensure that the paperwork is properly presented to the recorder’s office in your locality so the lien is discharged.