Liens: What’s the Big Deal About Them?
Written by admin on March 7, 2010 – 7:04 pm -
Lien, in its simplest definition, is the term used to denote any charge or duty imposed against an item or property as security for payment of a debt or some other obligation.
There are certain liens that can complicate your asset protection planning. This is one of the ways that creditors can have a take on your assets. In order to know how a certain lien can affect your asset or property, it is crucial that you have a thorough understanding of the different types of liens available out there.
Liens can either be consensual, statutory or judicial liens.
Consensual liens are those types of liens that are substantiated by a contract between the creditor and the debtor. These are the liens in which you voluntarily consent to whenever you take out a loan or any other advance of credit that you require.
A homebuyer will agree to a bank taking a security interest in a home before a mortgage can be obtained. A consensual lien is also created when a cart buyer opts for car financing available at the car dealer. The car purchased secures the car buyer’s obligation to pay for the property.
Failing to do so may mean that the purchased property will be taken away from him. Examples of consensual liens are mortgages, car loans, and security interests in banks.
Statutory liens meanwhile are those that are ideally occurring in lieu of established statutes or as stated by common law. Non-consensual liens give the creditor the right to repayment security of a debt by imposing a lien on a property or an item once there is a determined relationship between the debtor and the creditor.
Sometimes, creditors make use statutory liens to get at your assets to satisfy a debt by the operation of state or federal laws. Examples of this type of lien include tax liens and mechanic’s liens.
A tax lien is placed upon properties by local, state or federal government as stated in established statutes as security for delinquent taxes, including property and estate taxes.
A mechanic’s lien will arise when a party fails to pay a contractor or mechanic for services rendered or work performed on a certain property or car. This usually occurs when a contractor installs a furnace on a home or a mechanic does some repairs on a car.
Failure of payment for the services rendered will give the contractor or the mechanic a security interest on the property. If the owner decides to sell the property, the contractor or mechanic will have a share on the proceeds of the sale to pay for the debt incurred.
Of the three type of liens, those imposed by a judicial ruling is the most dangerous for the asset or property owner but is also one in which an informed owner may be able to eliminate.
This type of lien is created when a judicial court grants a creditor an interest on the debtor’s property after a judicial ruling. This lien can arise in several circumstances.
An example would be if a negligent driver injures someone in an accident, it will follow that the injured party would likely sue the driver for damages.
In some instances that the driver’s insurance would not cover for the damages, a judicial lien may be placed upon the negligent driver’s property as a claim for payment to the injured person. The judgment on the lawsuit filed will provide for the basis of the lien.
If the debt is not paid, the injured party or the judgment creditor can seek the enforcement of the judgment. This can be done by garnishing wages, seizing a bank account or placing a lien on the negligent driver’s property.
This lien is the first step in the process that will consummately end in the sale of the property in order to pay for the damages.
A judicial lien cannot be imposed on a ruling or judgment based upon a pre-existing ruling as in the case of a judgment on a mortgage foreclosure. This understanding will greatly help the property owner in exempting his property from possible acquisition by the creditor.
James Monahan is the owner and Senior Editor of
www.LienCentral.com and writes expert
articles about liens.
Tags: About, deal, Liens, Them, What's
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Removing Second Mortgages Though Lien Stripping
Written by admin on March 2, 2010 – 11:01 pm -
In the present economic times many individuals are living with financial decisions causing them to hold assets, such as houses, automobiles and boats, whose values have plummeted. Individuals are living in properties whose values have dropped far below the mortgages or driving cars, which are valued at a third of the loans. Those individuals with financial difficulties are looking for assistance through the bankruptcy courts in an attempt to get out from underneath all of the debts and liens acquired, which now vastly exceed their current assets.
There are two types of liens, which can be attached to an individual’s property or assets. The first is a voluntary lien, which is basically a situation where you have agreed to use the asset as collateral for a debt, i.e. mortgages and auto loans. A non-voluntary lien is one that a creditor imposes on you and that gives them the right to force you to sell the asset so that they can be paid, for example: judgments against you or tax liens. These liens are either secured or unsecured as to the asset they are attached to.
The most common issue for an individual nowadays is the situation where a homeowner who has a first and second mortgage on a primary residence is facing bankruptcy and wondering if they have the ability to save the family home. As real estate markets fall and the fair market values of the homes fall, homeowners are left with mortgages that far exceed the current fair market value of their homes. There is a process which could be of help to many in this situation and it is called “lien stripping”.
“Lien stripping” refers to the process of reducing a secured claim to the value of the underlying collateral. It uses the combined effect of 11 U.S.C.A. § 506(a) and 11 U.S.C.A. § 506(d) to bifurcate the lien into secured and unsecured. The secured lien is allowed in the amount up to the fair market value of the property at the time of the stripping. The balance of the lien, which exceeds the fair market value of the property, is now deemed unsecured.
Liens can be stripped off of the debtor’s assets in Chapter 11 or Chapter 13 when there is not enough equity in the assets. Section 506(a) and 506(d) of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the lien is now unsecured. The most common application of lien stripping is the reduction of car loan liens to the present value of the vehicle however it is currently used more often with home mortgages in bankruptcy situations. Lien stripping with car loans has been limited to vehicles purchased over 910 days.
The Bankruptcy Code does permit a bankruptcy plan to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence”. Section 1322 (b)(2). This section provides protection to the holder of a claim secured only by a lien on the debtor’s principal residence by prohibiting any modification of the terms, however the issue arose as to if this section precluded “lien stripping” of undersecured residential mortgages in the face of Bankruptcy Code section 506 which appears to permit bifurcation of undersecured mortgages and voiding of unsecured portions of the mortgage lien. At least two bankruptcy court judges sitting in Massachusetts have permitted such bifurcations, see In re Brown, 175 B.R. 129 and In re Richards, 151 B.R. 8.
In any event, there is an exception as to the lien on a principal residence lien and that is if there is a second or third lien on the same property. In this instance those liens, lien stripping is available to render them totally unsecured if the first mortgage balance equals or exceeds the value of the personal residence. The exception is only if there are two distinct mortgages on the property, not a refinancing situation. It should also be noted that the limitation of lien stripping of first mortgages only apply to personal residences, it will be allowed for a mortgage on a building used for business or renting.
As always, all situations relative to a strategy for bankruptcy and lien stripping should be discussed in detail with a bankruptcy attorney to understand all your avenues open to you.
The forgoing article on lien stripping as a chapter 13 bankruptcy tool was written by the Law Office of Goldstein and Clegg, LLC.
Tags: Lien, Mortgages, Removing, second, Stripping, Though
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What Is A Judgment Lien?
Written by admin on February 26, 2010 – 5:24 pm -
A judgment lien is a court ordered lien that is placed against the home or property when the homeowner simply fails to pay a debt. This doesn’t seem like a big deal, but when the homeowner has a judgment lien against his or her home and wants to sell it, the judgment lien has to be paid in full before the home or property can be sold. Judgment liens can be placed against the property for a variety of reasons such as unpaid credit card bills, utility bills, department store bills, landscaping or home improvement bills, and just about any bill that the homeowner has failed to pay in a reasonable amount of time. Any bill that can cause one to end up in court can result in a judgment lien.
A judgment lien is different than a trust, in that the judgment lien holder cannot foreclose on the home or the property as trust holder can. Judgment lien holders can demand payment, but ultimately they must wait for the homeowner to sell the property before they can expect to be paid the money that they are owed according to the judgment. Luckily for the judgment lien holder, the court will typically assign an interest rate to these liens so that the lien holder is compensated for their waiting as the interest will continue to accrue until the debt is paid in full. Because the majority of people will live in their home for quite some time, the interest can make a judgment lien grow, and grow, and grow over the years so that it is quite large. Imagine what a lien of just $3,000 would grow to over the years if the interest rate were 15% annually and that would be an even bigger amount if the debt were $5,000 or $10,000!
Of course, judgment liens require court action. A creditor will take the homeowner to court where the judge will determine if the homeowner does in fact owe the creditor any money. If the court decides that the creditor is owed the money, and the homeowner will not or cannot make payment, the judge will order that a judgment lien be placed against the property. The judgment lien will then be entered into land records offices for the city or county so that the home cannot be sold without repayment of the debt. Once the lien is filed with the land records office, the judgment lien is said to be attached to the property, meaning that it cannot legally be sold without paying off that lien. If the judgment lien is not listed at the land records office, then it means that the debt or lien is not legally attached to the property and does not need to be paid off to sell the home.
A home or property can have numerous liens against it, which may present a problem when the home is to be sold. Fortunately, the law says that liens will be paid off in the order that they were attached to the property, meaning the first lien will be paid first, the second will be paid second, and so on. This is a law that was basically developed for when a home is foreclosed on. If a foreclosed home is auctioned it will first pay off the first lien, then the second, and the third until there is no money left to pay the debts that are still attached or associated with the home. Of course, all trusts against the house, such as mortgages and home equity loans, would be paid off before the judgment liens, so it’s not uncommon for these liens to simply go unpaid because there is no money remaining to pay these debts after the trusts are paid. If there is not enough money to pay for all of the judgment liens and trusts on the home or property, they are then wiped out and can no longer be collected on. Of course, the auction will usually attempt to pay for all of these debts, and they are paid for until there is no money. The reason for this is that the new owner will not be able to get any home equity loans or second mortgages with judgment liens already on the home. If there is money left over after everything is paid off, the remaining amount would go to the foreclosed homeowner as all debts are paid.
You can look for judgment liens at the land records office, though you will typically not find them listed with trusts. Investors or homeowners looking to sell their home will have to look into both trusts and judgments, as they are listed in different areas. Investors can often be caught off guard when they realize how much debt is attached to the home, and sellers are often startled at old judgment liens that they had forgotten about and don’t want to afford to pay off in order to sell their home. It’s a good idea to go over all of this information before one bids on a home or attempts to sell it or put it on the market.
Judgment liens are not something that anyone wants put against their home, but they are common enough. There comes a time for many people when they simply cannot pay a bill, and a judgment lien is ordered. Making a continued effort to pay down the debt is a great idea so that you don’t acquire large interest fees in addition to the initial dollar amount of the lien. The homeowner does not have to wait until the home is sold to pay off the lien, instead they can be paid off as soon as possible. The judgment lien is simply put in place so that the home cannot be sold without the debt being paid, and when you look at it from the creditors point of view, this is a great tool to ensure that you’ll eventually be paid the amount you are owed in addition to an interest fee that will pay you for waiting.
Tags: Judgment, Lien
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How do you get your mechanics lien once a liened home has been sold?
Written by admin on February 26, 2010 – 4:23 pm -My mom put a lien on a house for improvements made on the house. Now, it has been 10 years later and the house it turns out, has been sold at least twice. Noone contacted my mom about her payment. We know that if the person who filed the lien cannot be contacted, then the house can have a clean title after the amounts of all liens have been placed in a fudiciary account in the name of the person who filed the lien. Who knows how to deal with this. Any help would be appreciated.
Tags: been, home, Lien, liened, mechanics, once, sold
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