Can a Loan Company Put a Lien on My House?

A property lien is a legal claim against an asset, typically real estate, that serves as security for a debt. This claim provides a creditor with a right to the property if the debt remains unpaid. A lien can significantly affect one’s ability to sell or refinance their property.

Understanding Property Liens

A property lien notifies the public that a creditor has an interest in the property because money is owed. This legal claim attaches to the property itself, rather than solely to the owner, meaning it can remain with the property even if ownership changes.

When a lien is placed, the property effectively becomes collateral for the debt. If the debt is not satisfied, the lienholder may have the right to seek repayment through the property, potentially leading to its sale. This mechanism helps creditors recover what is owed to them.

Different Categories of Liens

Property liens generally fall into two main categories: consensual and non-consensual. Consensual liens arise from a voluntary agreement between the property owner and the creditor. A common example is a mortgage, where the homeowner grants the lender a claim on the property as collateral for the loan.

Non-consensual liens, also known as involuntary or judgment liens, are imposed without the property owner’s direct agreement. These typically result from legal actions or statutory provisions. For instance, if a court rules that a person owes money, a judgment lien can be placed on their property to secure that debt. Tax liens and mechanic’s liens are other examples of non-consensual liens, arising from unpaid taxes or services.

Loan Companies and Property Liens

Loan companies can place a lien on a house under specific circumstances, depending on whether the loan is secured or unsecured. For secured loans, such as a mortgage, home equity loan, or home equity line of credit, the property serves as collateral from the outset. In these cases, the loan company places a consensual lien on the property as part of the loan agreement. This lien provides the lender with a legal right to the house until the debt is fully repaid.

For unsecured loans, like personal loans or credit cards, a loan company cannot automatically place a lien on a house. If a borrower defaults on an unsecured debt, the loan company must first file a lawsuit and obtain a court judgment for the unpaid amount. After securing a judgment, the creditor can then take steps to convert that judgment into a non-consensual lien on the borrower’s real estate. This means the property is not collateral initially, but can become subject to a lien through legal process.

How Liens Are Placed

The process for placing a lien on a property differs based on whether it is a consensual or non-consensual lien. For consensual liens, like mortgages, the lien is established when the loan documents are signed and subsequently recorded. These documents, such as a mortgage or deed of trust, are filed with the local county land records office. This recording provides public notice of the lien, indicating the creditor’s claim on the property.

For non-consensual or judgment liens, the process begins after a court issues a money judgment against a debtor. To create a lien on real estate, the judgment creditor must then record an abstract of judgment or a certified copy of the judgment. This document is filed with the county recorder’s office in the county where the property is located. Once recorded, the judgment becomes an enforceable lien against any real estate the debtor owns in that county, or may acquire in the future.