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How Does a Title Lien Work?

What you need to know

Smiling business people working together in the office

If you have purchased property in the past, you've probably heard your agent or lawyer mention that they're reviewing the property title for any liens. You have even been familiar with liens from the perspective of car ownership. When you purchase a car with a loan, the loan holder holds a lien against the car, and that lien is released when you pay off the car.

Aside from this basic familiarity with the concept of liens, though, do you really understand what they are and how they work—especially in the case of real estate? It's perfectly okay if your answer is "no." Liens are complex and often misunderstood. Keep reading for a simple and approachable explanation of liens and how they work.

What is a title lien?

Before we define a title lien, let's define a title. It's a legally binding document that shows ownership of property. If your name is on the title, you are the owner of that property.

A title lien, then, occurs when an entity other than the owner listed on the title has some sort of rights to that property. For instance, when you buy a home with a mortgage, the bank that holds your mortgage will have a lien on the property. Until the time when you pay off your mortgage, the bank has certain rights to the property. You could even go so far as to say that they are the part-owner of the property. They can reclaim the property if you stop paying, and if you sell the property, you have to pay out the amount that you still owe them.

Who might have a lien on a home?

While it is most common for banks to have liens on homes, there are various other entities and individuals who can hold title liens. If you stop paying your property taxes, the municipality that levies can place a lien on the home. If a judgment is made against you in court, the company or person to whom you are asked to pay restitution may also place a lien on your home.

Liens can also be placed on a home by contractors who are not paid for their services. An individual who is owed spousal support or child support payments can place a lien on a home, too.

Should you be worried if there's a title lien on a home you want to purchase?

If you come across a home you love, but then you find that there is a lien on the title, should you walk away from that home? In most cases, the answer is "no." As long as all of the liens are discovered when your lawyer goes through the title records, you don't really have anything to worry about. When you purchase the home, the seller will be responsible for paying off any of the lien holders before they keep any funds for themselves. Your lawyer—and the seller's lawyer—can make sure this is done properly.

The only time it would be risky to buy a home with a title lien would be if you were to purchase the home without being aware of the lien. Then, you might end up having to pay off the lien before taking possession of the home. Working with a good lawyer and title company can prevent you from ending up in this sort of situation.

Hopefully, you now have a better idea of what a title lien is and how liens work. Liens are not as scary or complicated as they can sometimes seem.

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