Placing a Mortgage Lien: How do I put a Lien on a Property

To buy a home, buyers can take out a mortgage loan to purchase a property if they are short on funds. They can then repay the loan over many years to their lender (e.g., the bank) in the form of mortgage payments. However, during such real estate transactions, the lenders are the most at financial risk.

In this context, a mortgage lien can serve as a safety net for lenders. It acts as a legal guarantee to recover their money if the buyer fails to repay the loan.

As a lender, knowing the steps of how to file a lien on a property can help safeguard your finances and avoid other legal hassles. In this guide, we will explore this process in more detail.

What is a Mortgage Lien?

In real estate law, a mortgage lien refers to the legal claim of the lender on the collateral (i.e., the property) for a mortgage. Creditors can hold interests in the property they lend through this lien until their loan is completely repaid.

How Do Liens Operate?

Let’s understand how liens function for creditors and buyers.

For creditors, a mortgage lien works as a legal claim that safeguards the lender’s loan agreement. It gives them the assurance that they will not suffer a loss in case of late or defaulted mortgage payments. In such a case, they can take back the collateral (in this case, the property).

On the other hand, the lien does not interfere with the buyer’s ownership or possession of the property. They can live in the estate, sell it, or even refinance it as they wish. This is true as long as they continue making regular mortgage repayments. The lien activates only when the buyer stops making payments or defaults on their loan.

In some cases, borrowers might opt for debt management strategies to address financial difficulties before defaulting. For a lender, it is crucial to monitor the borrower’s financial situation and stay informed about any debt management efforts that could affect repayment terms.

Who Can Put a Lien on a Property?

Different types of entities can legally file a lien on a land. Examples are:

• Government agencies or financial institutions 
• Mortgage lenders
• HOAs (homeowners’ association)
• Contractors and suppliers
• Utility or other service providers

How to File a Lien on a Home?

Lenders can put a lien on a property through an intensive legal process. If you are wondering how to place a lien on a property, follow these steps:

Identify the debt

The first thing to do is determine the overall debt that the buyer will owe to their lienholder. A mortgage is essentially a type of voluntary lien. So, in that case, the debtor directly agrees to the mortgage lien when they are accepting the loan from their lender. The loan agreement can work as the verification here.

For involuntary lien types, like a mechanic lien, the process typically requires court involvement.

Verify Lien Position and Who Has Ownership 

Before you can file a lien, check if there are any previous liens on the property. Carry out a title search in the public records to know if you are in the first or the second lien position. If you hold the first lien position, you will receive the full amount in case of property foreclosure. But if there was a previous owner who already had a lien on the home, their claim would receive precedence.

File the Lien

After you have formally identified the debt and even researched your lien position, you can then file the lien. Prepare this document with details like:

• The creditor’s identity (e.g. you)
• The debtor’s identity (e.g. property owner)
• The owed amount
• The description of the property

Then, file this form with the county recorder’s office to make an official entry about the lien in public record.

Inform the property owner

After completing the filing process, send a written notice about the lien to the property owner. Provide all relevant information like the debt amount and that the lien is added to public records.

If you have the second lien position while filing a claim, you can sell a mortgage note to a third-party investor instead. This is better than waiting out the long drawn-out claim process where you might not even get the full repayment over the first lien position holder at the end.

Enforce the property lien

In case the debtor fails to make timely repayments, you can enforce the lien and take legal action to receive repayment.

Foreclosure laws differ between states- so research the rules that apply in your jurisdiction. Note: States with judicial foreclosure laws require a mandatory court procedure, like Florida. Lenders can avoid court involvement for foreclosure in non-judicial foreclosure states like California.

Release the lien

Finally, you need to release the lien after the debt is repaid (whether through timely payments, settlement or foreclosure). File the release form with the local county recorder’s office.

Why You Should Prioritize Lien Filing As a Lender

For lenders engaging in real estate transactions, liens play a big role. It acts as a legal safeguard for lenders that ensures that they receive rightful compensation in case the debtor defaults. Here are some reasons why it is so vital:

• Security for lenders: Having this security in place can assure mortgage lenders, contractors, and suppliers that they have less risk of losing their investment. 
• Adequate compensation: Suppliers and contractors can enforce a lien (e.g., mechanic lien) to receive compensation for their work in construction projects in case of wrong payments, delayed payment, etc. 
• Assures transparency: Since liens stay in public records, filing one can assure more transparency in the real estate transactions for both buyers and creditors.

Concluding Words

In the real estate sector, mortgage liens are really helpful for lenders to avoid financial risk with their investments. Knowing how to file a lien on a property and how to enforce it when the borrower defaults can greatly reduce risk of loss. The process of filing a lien can get difficult though. 

So, it is important for one to stay informed about the correct steps to take and the legalities involved for a better experience.