Liens are an important concept to understand when it comes to real estate and bankruptcy law. Unfortunately, they’re also a piece of the puzzle that many of us tend to overlook – until it’s too late.
In a difficult moment, getting a handle on how liens work and what they are could make all the difference between protecting your interests, and having to give up the assets that mean the most to you.
Let’s dive into some FAQs about liens, and see if we can help break down what they are, how they might affect you, and where you can turn if you have any further questions or concerns:
What Are Liens & How Do They Work?
To put it simply, a lien is a mechanism that a creditor can use as legal claim to or a charge against your property, in order to secure payment or performance of an obligation.
Most commonly, liens are associated with lenders, and are often used in conjunction with major assets, such as real property or motor vehicles.
Broadly speaking, if you don’t make suitable payments on the property, creditors can use a lien as security, in order to collect what they’re owed. With a lien in place, creditors may be able to seize the asset as payment. In other cases, a lien puts a creditor in a position to take legal action against you, or claim their spot as “first in line” for payment when the property is sold.
Even more simply? If it helps, you can think of a lien as a public notice, indicating that you owe a creditor money – and that the creditor, often, has legal right to your property if payments aren’t made. Generally speaking, liens on property must be filed with records offices at the county and/or state levels. As a matter of public record, liens can serve as a notice to other creditors that there are existing claims on your assets. This can make it more difficult for debtors to sell the asset, or obtain financing.
Are There Different Types of Liens?
Broadly speaking, liens can exist for a number of different reasons. Largely, liens fall into two major categories – voluntary and involuntary liens, also called consensual and non-consensual liens.
A voluntary or consensual lien is, true to its name, one that you agree to. Generally, when you purchase an asset – such as a home or an automobile – using financing, you put up the asset in question as collateral against the loan. If you fail to make timely payments or break the conditions of your loan in some other way, the lender generally has the right to take back the property as payment – using a mechanism like foreclosure (in the case of real estate) or repossession (for a vehicle or other “big ticket” purchase). In other cases, the lien holder may be able to collect when the property is sold, as the seller uses some or all of the purchase price to repay the lien in order to clear title on the asset.
On the other hand, a non-consensual lien – also known as an involuntary or sometimes a statutory lien – is one taken out by a creditor that you do not necessarily have to agree to. Broadly speaking, these types of liens are the result of a court process, as a creditor seeks to put a claim on an asset as payment for some debt. There are many different types of non-consensual liens, including:
- Tax liens (resulting from a failure to pay a tax debt, including property tax debts and IRS debts)
- Contractor’s, construction, or mechanic’s liens (resulting from a failure to pay for parts, services, or labor)
- Child support liens (resulting from failure to pay support or alimony)
- Judgement liens (resulting from a lawsuit brought on by a creditor seeking payment for an unsecured debt, such as credit card debt, personal loans, or medical bills)
What Can I Do To Get Rid of a Lien?
Broadly speaking, there are a few different ways to remove a lien on your property. The first and most obvious solution is to pay off the lien in full. In other events, debtors may be able to settle or negotiate on their liens. Oftentimes, a creditor may be amenable to receiving a partial payment, in order to move forward and put the matter of the loan behind them.
In other cases, if you believe that a lien is not legitimate for some reason (i.e., if it expired over time, or if the lien release notice was forgotten in a flurry of paperwork), you may be able to get it corrected or removed by contacting the lien holder – or, in some cases, by disputing the lien, which may include bringing legal action against the lien holder.
Understanding Liens and Other Important Concepts
Here in Chicagoland, like so many other parts of the real estate and bankruptcy processes, liens can be complex and difficult to understand. In many cases, it may help to consult with an experienced attorney. A lawyer can help demystify these key concepts and discuss specific, actionable solutions, tailored to your unique personal or financial situation.
If you have any more questions about liens or any other aspect of bankruptcy, real estate, or personal injury law, don’t hesitate to reach out to the attorneys and staff of the Gunderson Law Firm to keep the conversation going.
At the Gunderson Law Firm, our team possesses unparalleled expertise and insight, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, and insurance industries. The Gunderson Law Firm represents a wide range of clients – individuals and companies, small and large, national and local — who turn to us for effective legal representation and informed, objective advice.