How to Eliminate Liens So You Can Access Your Equity
Knowing if there’s a lien on your property is critical information you need in order to make sound decisions for your financial future. With an involuntary lien, you cannot sell your property and your creditors can foreclose on your property if you fall behind on your mortgage payments.
As SFGATE also points out, credit monitoring agencies may note any involuntary liens against your home, negatively impacting your credit rating and potentially making it harder for you to take out other loans, whether secured or unsecured.
But What Is a Lien?
According to Investopedia.com, a real estate lien is “a legal claim on assets which allows the holder to obtain access to property if debts are not paid…and must be filed and approved by a county records office or state agency.” In other words, a lien is what gives creditors a way to collect their debt.
There are two types of liens: voluntary liens and involuntary liens. A voluntary lien, such as a mortgage loan, is one that is contractual; you agree to pay your monthly mortgage bill with interest. If you fall behind, your house serves as collateral. If you’ve already paid off your mortgage but took out a home equity line of credit, then you also have a lien on your home. You’re aware of these liens because you took the action that created the lien in the first place.
An involuntary lien is a lien placed without your consent. For Dummies gives an example: If you owe money to someone, such as a tax collector, but don’t pay, a lien is placed on your property.
Beyond voluntary and involuntary liens, there are specific types of liens that can be placed on your property. Read on to understand what they are as well as how you can get rid of the lien on your property.
Mechanical or Contractor’s Lien
Contractors can place a mechanical lien on your home if you hire them for a home improvement project and don’t pay them for both services and materials.
Why It Matters
- You can’t sell or refinance your home if there is a mechanical lien on your home.
- If time is an issue and you want to sell or refinance now, you may find yourself trying to dissolve the lien quickly, no matter the cost. With more time, you may be able to negotiate a better financial solution.
If you or your business fails to pay taxes, the government puts a lien on your property. As Clean Slate Tax explains, the government won’t seize your property—yet. It simply means they get first dibs on your property before other creditors.
Why It Matters
- A tax lien remains on your credit report for up to 10 years.
- Tax liens are public information. Records are updated only once you pay off the debt.
- If you don’t pay off the tax lien, the government can use a tax levy to seize your assets, including your bank accounts, your car, and, yes, even your home until they collect what they’re owed.
Taken to court over a debt and lost? You have what’s called a judgement lien. You’ll also receive a judgement lien if you simply ignore the summons, says credit.com.
Why It Matters
- Like other liens, it can impact your credit score.
- The lien is public information.
How Do You Remove Liens?
If you’ve found a lien on your property, there are a few steps you’ll want to take.
1. Check if the lien is paid off
Perhaps you already paid off the lien and you simply need to obtain a copy of your lien release. The lien holder—the person you owe money to—may not realize they need to remove the lien. BiggerPockets advises making the last lien payment contingent on the lien holder signing the lien release.
2. Pay off the lien
This is the easiest way to remove any lien. Once you’ve paid for it, you’ll need to fill out and file a release of lien form. Avvo recommends visiting your county clerk’s office or an attorney if you can’t find the necessary paperwork online. The form should include your name, the lien holder’s name, proof you paid your debt, and the location of the property.
3. Contact the credit bureaus
Once you’ve paid and filed your release of lien form, you’ll want to contact major credit bureaus and ensure the lien is removed from your credit report.
But what if you don’t have the money to pay off your lien in the first place? Now is the time to develop a strategy to eliminate your bad debts. Some homeowners find paying off their smallest debt first helps keep them on track. Others find paying off their highest interest debt first helps them save the most money in the long term.
Find the method that works for you. Once you pay off any involuntary liens on your home, you’ll open yourself up to numerous opportunities for accessing cash, such as the equity built up in your home.
YOU SHOULD KNOW…
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.
Hometap is made up of a collaborative team of underwriters, investment managers, financial analysts, and—most importantly—homeowners—in the home financing field that understand the challenges that come with owning a home.