What happens when a property owner cannot pay back their debts or fail to pay taxes? Property liens. Though many have heard of them, few know exactly how they work, how to get rid of them, and even how a smart investor can profit from them.
What is a Properly Lien?
In short, a lien is a legal right or claim against a property. Typically, these liens are placed against large items, such as homes or cars, by banks or credit unions who are still looking to collect what is owed to them.
These creditors place liens against property to gain a stake in the property as compensation for what is still owed. This limits what the owner can do with the property and gives the creditor additional legal rights, including the right to sell the property.
Types of Liens
Liens come in a few different forms depending on the type of debt that remains to be paid. You can have a lien placed against your property for tax reasons (not paying property tax), for not paying debt to a creditor, or failing to pay for completed repairs or work on your property.
What Happens if There is a Lien Against Your Property?
Having a lien against your property is not always a devastating situation. In fact, if you are still paying off your home, you probably already have a lien against it. But no need to worry, if you make your monthly mortgage payments nothing will happen and, when you pay it off completely, the lien will be lifted.
If you are late or fail to pay on other payments like taxes, mortgages, or repairs/work, then a lien could lead to some harmful outcomes, the largest of which means losing your property.
How Do You Get Rid of a Lien?
The easy answer is to pay off the outstanding debt against that property. If you do this, the lien will be removed, and the owner will be granted the full ownership and a clear title of the property.
Alternatively, you can choose to sell the property, using the proceeds from the sale to repay the debt which caused the lien in the first place.
Who Can Buy Your Lien?
Investing in tax liens is a popular way to buy property by fulfilling the debts of former property owners. When a property is seized for failure to pay property tax, the lien is then put up for auction publicly. This leads to investors possibly buying property for a percentage of its value, but it can also have many hidden risks and costs such as repairs and eviction.
How Can Title Insurance Can Help
Purchasing title insurance protects the lender and homebuyer (depending on the type of title insurance) against any financial damage that occurs from liens against the title of a property. With title insurance, the title company will also defend you in court and pay for covered losses.
Though a lien against your property is not a disaster if you continue to make payments, it can easily end up with you losing your property if the debts you have accrued are not paid.
To learn more about what you can do about liens or how title insurance can help protect against financial damage from liens, get in touch with one of the title and escrow specialists at Plymouth Title Guaranty Corporation.
Please note: The safety of our staff and clients is our highest priority. Effective immediately, Plymouth Title Guaranty Corp. will be taking the following precautions to limit the spread of the COVID-19 virus:
All purchase transactions need to take place at a Plymouth Title Guaranty Corp. closing office
- If a party to the closing is not feeling well, please contact your closer prior to the closing so appropriate precautions can be taken.
- We ask visitors to utilize the restroom in our building upon arrival to thoroughly wash hands before entering our office.
- Only individuals required to sign and/or deliver documents at closings will be allowed in our office. Specifically, closings will be limited to borrower(s), seller(s), agents, and lenders.
- All pens used in the closing will be given to the client after use.
- All closing rooms will be cleaned and disinfected in-between each closing.
- Those picking up checks at our office will be instructed to call our main line and request to speak to a staff member who will plan for delivery to the lobby or parking lot of our office.
- All staff will refrain from shaking hands before or after closings and ask clients do the same.
Please be advised that our staffing may be impacted during this unprecedented event. While we are committed to continuing to provide outstanding service, we ask for your patience in the face of this pandemic.