Encumbrances
Real Estate Liens Explained
Liens are financial encumbrances that attach to a property as security for a debt. Understanding lien types, priority, and how liens affect title is a core exam topic and an essential practical skill.
Types of Real Estate Liens
Mortgage Lien
A voluntary lien created when a borrower pledges real property as collateral for a loan. The lender holds a lien on the property until the mortgage is paid in full.
Mechanic's Lien
An involuntary lien filed by contractors, subcontractors, or suppliers who provided labor or materials to improve a property and were not paid. Priority rules vary significantly by state.
Tax Lien
A lien imposed by the government for unpaid property taxes or income taxes. Property tax liens typically hold the highest priority over all other liens, including existing mortgages.
Judgment Lien
A court-ordered lien that attaches to all real property owned by the judgment debtor in the county where the judgment is recorded. Created by recording a court judgment.
HOA Lien
A lien filed by a homeowners association for unpaid assessments. Priority varies by state — in some states HOA liens can foreclose ahead of first mortgages.
Lis Pendens
Not a lien itself, but a notice of pending litigation affecting title. Puts buyers and lenders on notice that a lawsuit could cloud title.
Lien Priority
Lien priority determines the order in which creditors are paid if a property is foreclosed. The general rule is 'first in time, first in right' — the lien recorded first has the highest priority.
Important exceptions: property tax liens are almost universally the highest priority lien regardless of when they were recorded. Mechanic's liens may relate back to when work first began, which can give them priority over later-recorded mortgages in some states.
When a property sells, all liens must be paid off or assumed. The title company facilitates this at closing by paying off recorded liens from the seller's proceeds.
Lien FAQ
What is the difference between a specific lien and a general lien?
A specific lien attaches to a particular piece of property (e.g., a mortgage or mechanic's lien on a specific parcel). A general lien attaches to all property owned by the debtor (e.g., a federal tax lien or judgment lien).
What is a lien release?
A lien release (also called a lien satisfaction or lien waiver) is a recorded document that removes a lien from the property record after the debt is paid. Always get lien releases at closing.
Can a lien prevent a sale?
Yes. Liens are encumbrances that must be resolved before clear title can be conveyed. A buyer's lender will require that all recorded liens be paid off as a condition of the loan.
What is a subordination agreement?
A subordination agreement is a contract in which a higher-priority lienholder agrees to step below a lower-priority lienholder in the payment queue. Commonly used when refinancing to let the new mortgage take first-lien position.