The Expert Podcast

This is Dave Panelli, certified title abstractor and examiner. Today, talking about property liens. What is a lien on a property? First of all, make sure we understand the exact spelling of this—it's "lien," not "lean" like you're leaning on something. A lien is a recording on a piece of real estate which encumbers that real estate by a claim. Now, the claim can come from a debt, it could come from some type of obligation or requirement. And we're going to talk about four or five different kinds of liens. We're going to talk about mechanics liens, we're going to talk about tax liens, we're going to talk about environmental liens. And the most common type of lien that everybody knows about is a mortgage.

You may not think of it this way, but a mortgage is actually a type of a lien. What's the difference between a mortgage lien and let's say a tax lien? Give you a minute to think about it. They encumber the property exactly the same way, meaning the property has a claim on it until the lien is paid. The big difference is the mortgage lien is a voluntary lien, meaning the property owner, the borrower, the buyer voluntarily put that lien on their property. So, when they borrowed money to buy the house or for a home equity loan, they exchanged that lien. They gave the lien voluntarily to the lender in order for the lender to say, "Yeah, I'll give you the money you want to buy this house for $600,000, I'll give you $550,000. But just to make sure that, you know, I'm feeling good about this, you have to give me a lien against your house. That way you can't go selling the house and running off with the money."

A mortgage is a type of a lien, it's the most common type of lien many people have on their house that comes from a mortgage company. Now, there's multiple kinds of mortgage liens. There's a first mortgage, a second mortgage, a home equity loan, line of credit. However, let's talk about the first two types—first mortgage and second mortgage. Those two types of liens, if you look at them on a property record, are not going to say "First Mortgage" or "Second Mortgage" on the document. It's just going to say "Mortgage lien," or "Indenture," or "Security agreement," or "Deed of Trust," depending on the state.

What determines the order of priority, whether it's a first lien or second lien, is exclusively determined by the order of recording, the date of recording. Whoever records their mortgage first becomes the first mortgage, whoever records it second becomes the second mortgage. Liens, like all real estate documents, are in priority of order. There's an old saying in the title search industry called "First in time, first in right." You file it first, you get the first rights. There's a few exceptions to that. Certain types of liens can jump the line, and we'll talk about those in a little bit.

The recording date and time is very important to know whose rights come first. Some mortgages or liens will have a description of the type of loan, like a line of credit, but most of them are just recording the debt. You don't even know what the terms of the loan are. For example, if a person takes out a 30-year loan at 7% interest, and this is their payment, none of that gets recorded on the lien. None of that gets reported in the land records. All of that is part of the lending note, the borrowing note, the loan note that's kept between the bank and the borrower. That doesn't go to the land records. All that goes into land records is the lien against the property for the amount of the mortgage loan.

Now, think about that for a minute. If somebody borrows $550,000 on a mortgage and they pay it for 10 years, their balance of their mortgage loan is going to be less than $550,000. They've probably paid it down to maybe $400,000 or $380,000 or something like that. But the mortgage lien that's still recorded in the land records is going to show the full amount of the loan, the full amount of the lien. $550,000. The lien against a property does not reduce down as the loan's being paid. It does not lower the payoff amount. The loan itself does that. That's not a problem. But when you look in the land records, you won't be able to tell how much is still owed. All you'll be able to tell is how much was originally borrowed. Got it?

Again, if you have any questions about this, if you want to talk more with a certified title examiner, you can click the link below. We have title training and also title consultation that's available. Let's talk about another type of lien which is very common, which is a tax lien. IRS tax lien from the Treasury Department. You don't pay your income tax, they're going to slap a lien on your house. How do they do it? Well, unlike a mortgage lien, they don't put a specific property description on the lien. You know, whatever the legal description is for your property, 12 Main Street, whatever it is. The IRS, Treasury Department, files a blanket lien in the county where they think you live or they think you have property. And it encumbers every property that you own in that county. It's not on a specific property. It's on every property in that county.

So, if you have more than one property in that county, they file one lien, boom, it slaps on every property. And it jumps to the front of the line, even if you pay off your mortgage, even if you pay off your second mortgage, even if somebody forecloses on the first mortgage, that lien stays in place. Federal tax liens, like most municipal liens, most government liens, get priority. Let's talk about a related type of lien that is similar in terms of it's a blanket lien, which is a judgment lien. If you are sued in court in the county where your property is, and you lose your lawsuit, somebody sues you for $10,000 'cause your dog bit them and they sued you and they win, they get a judgment. That judgment gets recorded in the land records, and it automatically encumbers any property.

The person does not normally, in most counties, have to go to the extra step to record against a particular property. It's recorded, land records, county clerk, boom, it's on your property. So, if you're doing a title search, you're doing an abstract for a property in a certain county, make sure you also look for the civil judgments for that property because that could encumber the property automatically. Next, we're going to talk about an environmental lien. Well, what's an environmental lien? It's a little bit of a gray area. If you're selling a commercial property, the buyer probably wants an environmental site assessment or a Phase 1 ESA, which includes environmental lien search. They want to make sure there's no toxic waste or any prior claims against that property that have anything to do with environmental issues, asbestos, oil, chemicals, anything. And that will be recorded as a very specific type of lien that has that specification on there.

Another type of lien is a mechanics lien. Mechanics lien is when you hire somebody to work on your property, a contractor, repair person, electrician, and you don't pay the bill. If you don't pay the bill, they have to go through a series of notices. You can see on the screen, there's an example notice of right to lien from a contractor. And once they go through those notices, they can file a lien against your property, which means now your property is encumbered and blocked because you didn't pay that bill. In many jurisdictions, this also applies to delivery of materials. So, if you call up the lumber yard and they deliver some lumber package to you and you don't pay them, they can also file a lien in many jurisdictions.

It also covers equipment. If you call the equipment supply house and they deliver a payloader to your property or an excavator and you don't pay for that bill, if they delivered it to your property, they can file a lien again. Both of those don't apply if you go pick it up. If you go pick up the lumber at the lumber yard, that doesn't count. But if they deliver it to your property or they deliver the equipment, it could file a lien. Now, how do you protect yourself as a property owner or builder or somebody who's doing it from a mechanics lien? Because it could also come from a subcontractor.

Let's say if you hire a general contractor, Joe's Builders, to build an addition on your house, you pay him $100,000, they put that addition on but Joe didn't pay the lumber yard, Joe didn't pay the plumber. That plumber or lumber yard can go back and slap a lien on your property for something you already paid Joe for. So, you have to make sure you get what's called lien waivers from all the subcontractors that did work on the property to make sure that after you pay Joe, you're not going to be out having to pay a double bill to somebody who did not get paid by Joe, the general contractor. See how that works?

Which leads us to our last subject of liens, which is a lien release. How do you get these liens off of property? Somebody files a lien on your property, somebody has a mortgage on your property, you have a tax lien and you paid it, you want to get it off. You want to make sure that you get from that lien holder a lien satisfaction or lien release. It's another document. It has to be recorded in the property records in order for it to cancel out that lien. Because that lien document that's in your land records will always be there for the perpetuity of time. It's never going to get pulled out of the books. It's never going to get deleted, never going to get erased. They don't tear it out. But they do record a satisfaction that shows this particular lien is paid off.

So, anytime you're doing a title search, make sure if you find a lien that you look for the corresponding satisfaction. Because just because you found a lien doesn't mean it's still active. If that lien has subsequently been released or paid off, there may be another recording. If there's not another recording, you need to make sure that the lien holder files one if it's been paid. If they haven't been paid, all bets are off. But sometimes they get paid, but then they don't file a lien release because they don't want to pay the money or the time to actually record it. Mortgages are almost always released once they're paid. If the mortgage company does that for a living, they know how to do this, and it's a more common type of transaction.

So, if you are at all needing to determine the clear title to a property, the encumbrances on a property, searching for liens is extremely important. Searching for liens properly is important because they're not always filed where you think they're going to be filed. They may not be filed under the property address, they may be filed under name of owner at the time, maybe a prior owner, maybe filed under legal description. And the lien releases also have to be searched for to make sure you're not reporting a lien that already has been cleared. Because now you're saying something bad about a property that may not be true.

Again, if you do want to arrange a consultation with a certified title examiner, you can click the link below. You can get more information from our website. And liens are an important subject. I'm sure you have opinions about that. Put it in the comments, let us know what you think. Thank you for watching another episode of Actual Human Advisory on Describe TV. Remember, we have live one-on-one consultation appointments available at actualhuman.com, where you can book a one-on-one, undivided attention live call with a licensed investigator, a licensed insurance broker, a licensed mortgage broker, real estate broker. I'm also a certified real estate title examiner, a certified civil court mediator, along with having developed and started over 15 businesses, several of which were sold for millions of dollars. So, if you do have questions in any of those categories, you can arrange a one-on-one live video consultation. Use the link below and we'll see you on the next video.