In theory, anyone to whom you owe an overdue debt can slap your property with a real estate lien. That doesn't happen immediately, however, because most creditors have to file in court to get a lien. One notable exception, of course, is your mortgage lien, which you accept when you take out the loan. Most real estate liens eventually expire, but it's often in your interest to take care of them.
Although real estate liens can expire, each state has the ability to set its own statute of limitations on this penalty. With that in mind, individuals who have been subjected to a lien should research their state's policies on this particular issue.
Understanding the Statute of Limitations
Every state sets a time limit with regard to how long a lien can stay on your property. Florida, for example, once had a 20-year statute of limitations on liens that it later shortened to 10 years. If you haven't paid off the debt and your creditor hasn't taken action, the lien expires, but many states allow creditors to refile and extend the lien. Some liens are different: your mortgage lien stays on your house until you pay it off.
Completing Payment of Debt
Liens can prevent you from selling your house. If you want to sell, and you don't want to wait 10 years for a lien to expire, the simplest way to get rid of a lien is to pay it off. Eliminate the debt and the creditor removes the lien. In some cases it's the only way to protect your real estate. If you don't pay property taxes, for instance, the county will foreclose in perhaps three years, long before a tax lien might expire. Some creditors will negotiate with you and accept partial payment but beware: if your creditor agrees to accept a partial payment on the debt, get a written statement confirming that he'll remove the lien in return.
Choosing to File for Bankruptcy
You may be able to make liens expire faster by filing bankruptcy. In Chapter 7 bankruptcy, the court can sell off your property but state laws protect some assets. In many states some of the equity in your house is protected. If the protected amount plus what you owe on your mortgage is greater than the value of your house, there's nothing to give your creditors. The court won't sell the house, and may agree to remove the lien. If a lien isn't removed, your creditor can still use it to take the house after bankruptcy wraps up.
The Full Effects of a Lien
If your lien hasn't expired and you want to sell or refinance, you have a problem. Nobody wants to buy a house with a lien on it, so you have to pay off the lien at closing, if not sooner. With refinancing, the problem is that liens are paid off in foreclosure in the order they went on the property. Your refinance lender would get paid after the lienholder, and no lender will accept that. You either have to pay off the lien or convince your creditor to "subordinate" – to agree that the refinance is in line to get paid off first.
- Nolo: Difference Between a Property Lien and a Judgment Lien
- Nolo: Getting Rid of Judgment Liens in Bankruptcy
- Internal Revenue Service: Understanding a Federal Tax Lien
- Realtor.com: How Are Liens Handled When a Home Is Sold?
- 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.
A Durham, NC resident, Fraser has written about law, starting a business, balancing your budget and fighting evictions, among other legal and financial topics.