Lenders and other creditors use real estate liens to secure debts. A real estate lien, once placed, remains in effect until the lien holder decides to release the lien. Generally, a lien holder only releases a lien when the debt that caused the placement of the lien has been settled. Aside from your creditors, the government can also place a lien to force the payment of back taxes.
When you borrow money against your home, you sign a security agreement that allows your lender to place a real estate lien on your home. Your lender has to file the security agreement at the local county courthouse during a process known as “recording the lien.” When you eventually settle the debt, your lender files second notice with the county courthouse, called a “satisfaction of lien.” After filing satisfaction of lien, the lender no longer has a claim on your home.
Typically, real estate liens take the form of mortgages and most mortgages have term times that last for between 15 and 30 years. Assuming you make your monthly payments as agreed under the terms of your mortgage agreement, the lien on your home remains in place for the duration of the loan term. If you make additional principal payments, you may end up paying off your loan before the end of the mortgage term, in which case your lender must release the lien early. Conversely, if you miss loan payments or incur penalty fees for making your payments late, your lender can extend the lien past the original mortgage end date and keep the lien in place until you have paid off the debt.
You cannot sell your home or transfer ownership of your home until you have satisfied any liens that exist on the property. If you take out a home loan and fail to make your regularly scheduled payments on the debt, your lender, having placed the lien, can foreclose on your home and sell your property to recoup the debt.
If multiple liens exist on your property, the liens are arranged in order of seniority, which means that the first lien holder to place a lien has the first claim on proceeds from the sale of your home. During a foreclosure sale, junior lien holders often end up with nothing if the home sale fails to raise enough money to cover all of the debts.
Lien holders must release satisfied liens but errors can occur and in some cases a lender may file a satisfaction of lien with the wrong county or forget to file it at all. Even though you no longer owe money on the debt, an unsatisfied lien prevents you from refinancing or selling your home.
Many people assume that when they pay down home equity lines of credit, the lender will close the line and file a satisfaction of lien. In fact, a HELOC can remain open with a zero balance for many years so you must instruct your lender to close the line when you pay down if you have no plans to use the HELOC in the future.
- Oregon State Bar: Liens
- FDIC: Lien Release on Real Estate
- 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.