A lien is defined as a claim against a property for repayment of a loan or other judgments.

 

This sounds like a very boring topic, but it’s one of vital interest to you as an investor. This is because of one very important fact–a lien affects the ability to transfer ownership of a property!

Believe me, it gets very exciting (and unpleasant) when a lien pops up and causes a very profitable deal to fall through. Failure to do due diligence on properties can cost you a lot of money!

So, my advice is to study closely the information in this article. It can keep you on the path of profitability and save you considerable heartache.

Categories of Liens

 

As I said earlier, liens are a claim against a property. In general, there are two categories of liensvoluntary and involuntary.

A voluntary lien is a mortgage or deed of trust lien. In other words, when you buy a property, you agree that the lender has a claim on that property until the mortgage or deed of trust is paid in full. An involuntary lien is the result of legal action. Hopefully, you won’t have to deal with every type of lien I describe below, but, if you do, you’ll be forewarned and forearmed and can deal with the situation in the most effective way possible.

Types of Liens

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Bail bond lien

A bail bond allows a person arrested on criminal charges to be released on bail pending his or her trial. One way to get a bond is to pledge capital in the form of real property (a home, etc.).

 

Child support payment

When a property owner fails to make court-ordered child support payments, the state government places a lien against the property’s title.

Code enforcement lien

This type of lien occurs when a property owner is fined for failing to correct code violations and fails to pay the resulting fine.

The local enforcement board then places a lien on the property’s title.

Corporate franchise lien

This lien can occur within states that have a corporate franchise tax for the right to do business within those states. If a corporation fails to pay the tax, the state places a lien against any corporate real property within the state.

Federal judgment lien

This lien involves debtors who’ve defaulted on federally guaranteed loans (SBA loans, student-guaranteed loans, etc.). When default occurs, a lien is placed against the property title.

Federal tax lien

When a person fails to pay federal income tax, the Internal Revenue Service has the statutory power to place a lien against the title of any real property belonging to that person.

By Haadi