Real Estate Law Liens on Property

Liens on Property Subjects Covered: Other Liens Judgment Liens Tax Liens Mortgage Liens Construction Liens Other Liens Lien Priority Attachment Lis Pendens

Two Types of Encumbrances: Definition Charge or burden on property that may diminish its value or obstruct use of property, but does not necessarily prevent transfer of title. Two Types of Encumbrances: Non-monetary encumbrances -- affect physical condition and use of property Monetary encumbrances or liens -- affect title

Encumbrances Nonmonetary Encumbrances Encroachments Licenses Deed Restrictions/Covenants Easements Appurtenant In Gross By Necessity By Prescription Monetary Encumbrances Liens Real Estate Taxes Mortgages Mechanic’s Liens Judgments Environmental Super Liens

Liens Definition The right of creditor to have Debtor's property sold and be paid from proceeds. Allows creditor to force sale of property. Example: ABC Stereo Comp. sells Tom a $1,000 stereo. Tom only has $200, he finances remaining $800 with ABC Stereo Comp. Tom fails to make final payment. ABC Stereo Comp., which has a lien on stereo can repossess and sell to recoup loss.

Types of Liens Voluntary Involuntary Most common is mortgage where owner of property agrees to use title to real estate as security for a debt. Liens also arise by operation of contract. (e.g., Contract with electrician to perform work on home) Involuntary By operation of law. (i.e., tax lien, judgment liens, Super liens - environmental)

Mechanic’s Liens When does owner subject real property to lien? Contract states -- lien claimant must show he was hired by Owner or his agent to furnish labor or materials. Consent states -- sufficient for lien claimant to show owner had knowledge of and consented to doing work, even if work ordered by person other than Owner, i.e., Tenant. [Courts recognize that Landlord is often powerless to prevent Tenants from improving, therefore need affirmative consent of Landlord. (i.e., provision in lease permitting additions.)]

Mechanic’s Liens (cont’d) Who is entitled to lien? Driven by state statute -- Generally, both contractor and subcontractor can recover, anyone who furnishes labor or materials to improve real estate. In some states, the landowner is responsible for making sure subcontractor is paid even when landowner has paid general contractor in full and general contractor has NOT paid subs. Always best for landowners to get lien waivers from general contractor before making any payment.

Mechanic’s Liens (cont’d) What type of work is covered? Mechanics' liens only available for work which results in permanent improvements. Example: If contractor installs removable shelving in home which could be removed without serious damage to home, no lien could attach since shelving did not constitute permanent improvement.

Mechanic’s Liens (cont’d) What's the procedure for claiming a lien? Every lien claimant MUST record lien statement with register of deeds specifying amount due and nature of improvement within certain time after work completed. This appears on title work. Then claimant must commence an action to enforce lien within a limited time period after work is completed. If court decides lien is valid -- property is sold to satisfy debt.

Quiz True/False A declaratory judgment is an award of monies to a plaintiff if he/she wins the lawsuit. A judgment award in and of itself is not a lien. An order of final judgment must be recorded to evidence the satisfaction of a judgment lien. Federal tax liens are valid for 20 years from the date of the assessment. F T F F

Quiz (cont’d) A subordination agreement is one in which a party agrees that his/her interest in real property should have a lower priority than the interest to which it is being subordinated. To file a construction lien, there generally is a requirement that the lien claimant be in privity of contract with the property owner. A lien waiver is a document indicating that a subcontractor has been paid and will not be subjecting real property to liens. T F T

Quiz (cont’d) The statute of limitations to bring a foreclosure action on a construction lien typically is of short duration. A notice of lis pendens is not a lien. The only tax lien that is not a general tax lien is a real property tax lien. T T T