The foreclosure process, whereby a mortgage lender seizes the property of a mortgage borrower, involves various complex processes. If the property has several different liens placed on it, they complicate the process even more. Marshaling of liens aim to minimize confusion arising from the various liens placed on the property.
Foreclosure occurs when a mortgage borrower fails to pay his mortgage lender according to the agreed conditions. This causes the mortgage lender to suffer a loss from the unpaid mortgage balance. To recoup this loss, the mortgage lender takes possession of the borrower's property. The lender then sells the property to pay off the outstanding balance. Depending on the property and the liens placed against it, the foreclosure process may involve the marshaling of liens.
A lien gives a party an interest in the value of the property. If there is more than one mortgage, each lender has a lien against the property. If the property owner does not pay property taxes, there may be a tax lien against the property. If the property owner's creditor sues him and obtains a money judgment, the creditor can attach a lien to the property. The state may place a lien on a property to force the owner to attend a criminal trial. If the property owner does not pay a repair bill, the builder may also attach a lien to the property.
Marshaling of Liens
Each lien holder is entitled to a portion of the property's value. When foreclosure occurs, the sale proceeds have to be distributed to these lien holders. Usually, the first recorded lien gets paid in full before the second recorded lien gets anything, and so on. As such, not all lien holders may get paid. Marshaling of liens gathers all the liens attached to a foreclosed property to determine their validity and priority.
Marshaling of liens avoids confusion regarding the amount of money each lien holder gets from the foreclosure sale proceeds. It also prevents several foreclosure actions occurring against the same property, resulting in the property being sold more than once. Because all lien holders get a notification of the foreclosure, they all get a chance to collect their debts. Marshaling of liens also maximizes the sale price of the foreclosed property.
- Ohio State Bar Association: Property Law
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed Sep. 18, 2020.
- Experian. "Tax Liens Are No Longer a Part of Credit Reports." Accessed Sept. 18, 2020.
- Experian. "What Affects Your Credit Scores?" Accessed Sep. 18, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act 15 U.S.C § 1681," Page 22. Accessed Sep. 18, 2020.
Edriaan Koening began writing professionally in 2005, while studying toward her Bachelor of Arts in media and communications at the University of Melbourne. She has since written for several magazines and websites. Koening also holds a Master of Commerce in funds management and accounting from the University of New South Wales.