A residential lien is an issue that homeowners should be aware of when wanting to sell their homes. A residential lien is a claim on a residential property for the homeowner’s unpaid bills. When a residential lien is placed on a home’s title, the owner cannot legally sell, refinance, or otherwise transfer a clear title of ownership to the home. Residential liens are a way to ensure that creditors receive payment, and only certain debts can result in real estate liens. These debts vary from unpaid charges for maintenance and improvements, to outstanding balances on mortgage loans and taxes.
In Texas, if you don’t pay your property tax or other taxes, you may be hit with a state tax lien. Unlike a federal lien that plays by the same rules across the country, a state tax lien differs in how it’s handled from state to state. Texas has its own particular set of rules about when a tax lien may be placed, what can have a lien placed against it, and how a debtor can get rid of that lien.
3 Types of Residential Liens:
1. Mortgage Lien
A lien on the property also exists when a mortgage loan is used to purchase the home. In exchange for the use of the money needed to purchase the home, the lender has a legal claim on the property, as evidenced by the mortgage note that the borrower must sign at the sale closing. A mortgage lien, if unsatisfied with timely repayment of the loan, may result in a foreclosure by the lender and sale of the home at auction.
2. Tax Lien
Although Texas does not have a state income tax, you do pay taxes on other things such as personal, real estate, and business property. If you don’t pay, you receive a Notice of State Tax Lien letting you know that you owe the state some money, and in the meantime, a lien will be placed on your property, personal or business.
The lien stays there until you pay the taxes or come to an agreement. If you don’t, the state has the right to levy the property (seize it) and sell it (foreclose on it) to settle your back taxes. The most common state tax lien occurs due to unpaid property taxes.
3. Mechanics’ Lien
A “mechanic’s” or “construction” lien protects the provider of services whose charges to the owner for repairs, improvements, or maintenance have gone unpaid. These services must be done to improve or maintain the property’s value. The contractor files the lien with the country recorder or clerk of court. Homeowners are responsible for charges by contractors as well as the subcontractors who, in theory, were to be paid by the contractor. Every State permits someone who supplies labor or materials for a construction project to claim a lien against the improved property. While some states differ in their definition of improvements and some states limit lien claims to buildings or structures, most permit the filing of a document with the local court that puts parties interested in the property on notice that the party asserting the lien has a claim. In Texas, you must send the notice by the 15th day of the third month after completing the work. California requires a 20-day notice to the owner before a contractor may file the lien. Indiana’s deadline to file a mechanics lien is 60 days on residential projects.
Credit Significance
Residential liens against your property can be recorded by credit-monitoring agencies and affect your credit rating, which in turn may affect your ability to secure other kinds of loans, both secured and unsecured. It is in the best interest of the property owner to satisfy all liens as soon as possible, as the presence of a lien on a home seriously affects its market value to potential buyers.
Release
Residential liens can be released by the owner meeting the obligation on which the lien is based. When the obligation is met, the lienholder files a release with the country recorder where the lien was originally filed. If that is not done, the owner must present proof of satisfaction to the recorder and apply for the release of the residential lien. Recorded liens are the subject of a title search whenever a property is the subject of a sales transaction and for most loan applications secured by the property.