If you’ve ever been involved in a situation where you owed money to a contractor or have been involved in some sort of legal judgment situation – or were on the other end of the equation – a lien may be involved.
A lien is a legal right for a particular party to stake a claim in an asset of value if an underlying debt has not yet been fully repaid. Valuable assets with liens on title can be difficult to buy and sell until the liens are dealt with and removed.
A lienholder is an individual or company that holds the lien. It could be a lender, bank, finance company, credit card issuer, or individual who has signed a contract within which money is owed.
The lienholder would then have a stake in a specific asset – or a lien – that would then serve as collateral and ensure that the monies owed are repaid. As long as a balance is still owed, the lienholder will hold on to the asset in question until the money is repaid, after which the lien would be released.
You could also become a lienholder depending on the situation. In order to become a lienholder, you would have to file a claim with the Small Claims Court if the amount owed is less than $25,000. If you have a larger claim to file, you’ll want to work with a lawyer.
Whether you’re having trouble getting someone to repay you for a debt owed or simply want to secure your finances and make sure you’re repaid what you’re owed at some point, you may want to become a lienholder and place a lien on someone else’s property or asset.
If there is more than one lien on the title of a home, the first lienholder in line will be repaid first before any other lienholder in the equation.
A first lien is the first debt that will be repaid if a borrower defaults on the loan and the property was used to secure the debt. As such, the first lien will be paid before any other lien. For instance, a lender that holds the first mortgage on a home is considered to be the first lienholder.
In the case of a home in which the borrower defaults, the lender will foreclose the home and then sell it to recoup payment. As the first lienholder, they’ll be the first ones in line to get paid whatever proceeds are made from the sale. As the first lienholder, the lender assumes a lesser risk compared to second or third lienholders.
That’s why second mortgages usually come with higher interest rates because of the added risk of being second in line to be paid back in the event of mortgage default.
There are various types of liens that can be placed on the title of a valuable asset, such as a car or home.
When you take out a mortgage, a lien will be placed on your home by your mortgage lender until you’ve fully paid off your loan.
Likewise, a lien will be placed on your vehicle if you take out a loan to finance it. Until that loan has been repaid in full, the lender will place a lien on your car’s title.
In both of these cases, the liens provide security to the respective lenders, allowing them to repossess the home or vehicle in order to make sure the debts are satisfied.
By having a lien on the title of the home or car, the debt will be considered secured, giving the lender a better chance of being paid back for the loan extended to finance either asset.
If you hire a contractor to do work on your home and did not pay them what was expected, they may file a lien and place it on your home until you pay the bill in full.
The government could place a lien on your home if you have outstanding taxes that have yet to be paid.
This can involve having a lien placed on your home in the event that you are sued and have been ordered to pay a specific amount to the plaintiff. The judgment lien is placed to ensure that damages will be paid if you’re unable to pay right away.
Yes, it’s possible to buy a vehicle that has a lien on it. In fact, it may be more common than you may think. When purchasing a car that already has a lien on it through a private seller, it is important to pay the lienholder (the lender) directly. If you pay the seller directly, they can simply take the money and you’d be responsible for the car.
As such, it is imperative that you pay the lender (the lienholder) directly and ensure that the vehicle title is transferred to you when purchasing from a private seller.
Note: if the purchase price you agree to pay isn’t enough to release the lien, be sure to ask the seller to make up for the difference before paying for the car or signing a contract.
In general, if a home has a lien on it and you agree to buy the property, you’ll be assuming responsibility for the lien. This is why it’s customary for buyers to hire a lawyer or notary public to search local records for any liens on a home before agreeing to a purchase.
Since liens are attached to real estate, the debt doesn’t follow the person selling the asset. Instead, liens exist on the property title. Before a real estate deal can close, the mortgage company will want to have a title search performed in order to make sure there are no issues with the title before it’s transferred. If a lien appears on the property, the mortgage lender probably won’t agree to finance the purchase.
In simpler terms, you can buy a home with a lien on it, but the seller will need to clear it before the sale is finalized.
When you take out a mortgage to finance the purchase of a home, the mortgage lender will place a lien on the property. Mortgages are just one type of lien that can be placed on a house, which is considered voluntary.
Other liens that can be placed on a property are involuntary. These may include a contractor’s lien to ensure they are paid for any work done on the home, a property tax lien if pay property taxes are yet to be paid, or a judgment lien as a result of a lawsuit.
Depending on the asset, the way to check if it has a lien will vary.
When you’re buying a home, having a title search conducted is a great way to find out if there are any liens on the title before you commit to buying the home. A title company will be able to conduct this search on your behalf.
You can also check with the local Land Registry Office to verify whether or not a lien is on the title and what its status is.
To find out if there is a lien on a car, you can check with the Ministry of Transportation simply by providing the VIN, make of the vehicle, and model year. If you own the car, you can get in touch with the dealer or lienholder to find out.
Liens are public records, so anyone has the right to find out if there are liens on specific titles. You can also visit your local government office to have the title of an asset searched for you.
If you’re planning to sell a home or car that has a lien on it, your best bet is to pay off the debt before you sell. After the lien has been paid off, the lienholder will then issue a clearance certificate which proves that the lien isn’t valid anymore and that the debt has been paid.
A lien on a home is cleared when the debt is fully repaid. Until then, the lien will stay with the home, which means you will assume all responsibility for the debt if you buy a home with a lien.
Before finalizing a deal on a home purchase, have a title search conducted to identify whether or not there are any liens on the property. Any outstanding debt that is attached to a house means there is a lien on the property. In order to have the lien removed and cleared from the record, the debt must be paid in full.
To clear a lien from a vehicle, the owner will need to pay off any outstanding debt owed on the car. Once the debt has been paid, the lender will discharge the lien.
The Ministry of Transportation in your province will then change the record to reflect the paid debt. It’s important for buyers to obtain documentation proving that the lien has been discharged.
If you’re unable to repay the debt, you could try to sell your home “as is” to a willing buyer, though it will be very difficult to find a buyer who would be willing to take on that type of issue.
That said, you may be able to come up with an arrangement whereby any proceeds of the sale will be used to pay off the lien, after which the title can be cleared and the ownership can be transferred.
It’s important to know if there’s a lien on a home or car that you plan to buy. In the case of a vehicle purchase, you would need to pay the lienholder directly.
But in the case of a home, the situation may be a little more complex. Depending on the situation, you may want to work with a lawyer to make sure you’re not putting yourself in a potentially risky situation.
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Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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