Real Estate Law

Liens on Property

Real Estate Law

Liens on Property

Liens on PropertyLiens on Property

Subjects Covered:Subjects Covered:

Judgment LiensJudgment Liens

Tax LiensTax Liens

Mortgage LiensMortgage Liens

Construction Construction LiensLiens

Other LiensOther Liens

Lien PriorityLien Priority

AttachmentAttachment

Lis PendensLis Pendens

DefinitionDefinition

Charge or burden on property that may Charge or burden on property that may diminish its value or obstruct use of diminish its value or obstruct use of property, but does property, but does not necessarilynot necessarily prevent transfer of title.prevent transfer of title.

Two Types of Encumbrances:Two Types of Encumbrances:

1.1. Non-monetary encumbrances -- affect Non-monetary encumbrances -- affect physical condition and use of propertyphysical condition and use of property

2.2. Monetary encumbrances or liens -- affect Monetary encumbrances or liens -- affect titletitle

EncumbrancesEncumbrances

Monetary Monetary EncumbrancesEncumbrances

LiensLiens Real Estate TaxesReal Estate Taxes MortgagesMortgages Mechanic’s LiensMechanic’s Liens JudgmentsJudgments Environmental Environmental

Super LiensSuper Liens

Nonmonetary EncumbrancesNonmonetary Encumbrances EncroachmentsEncroachments LicensesLicenses Deed Deed

Restrictions/CovenantsRestrictions/Covenants EasementsEasements

1.1. AppurtenantAppurtenant

2.2. In GrossIn Gross

3.3. By NecessityBy Necessity

4.4. By PrescriptionBy Prescription

EncumbrancesEncumbrances

LiensLiens

DefinitionDefinition

The right of creditor to have Debtor's The right of creditor to have Debtor's property sold and be paid from proceeds. property sold and be paid from proceeds. Allows creditor to Allows creditor to forceforce sale of property. sale of property.

Example:Example:

ABC Stereo Comp. sells Tom a $1,000 stereo. ABC Stereo Comp. sells Tom a $1,000 stereo. Tom only has $200, he finances remaining $800 Tom only has $200, he finances remaining $800 with ABC Stereo Comp. Tom fails to make final with ABC Stereo Comp. Tom fails to make final payment. ABC Stereo Comp., which has a lien on payment. ABC Stereo Comp., which has a lien on stereo can repossess and sell to recoup loss.stereo can repossess and sell to recoup loss.

Types of LiensTypes of Liens

VoluntaryVoluntary

Most common is mortgage where owner of Most common is mortgage where owner of property agrees to use title to real estate as property agrees to use title to real estate as security for a debt. security for a debt.

Liens also arise by operation of contract. (e.g., Liens also arise by operation of contract. (e.g., Contract with electrician to perform work on Contract with electrician to perform work on home)home)

InvoluntaryInvoluntary

By operation of law. (i.e., tax lien, judgment By operation of law. (i.e., tax lien, judgment liens, Super liens - environmental)liens, Super liens - environmental)

Mechanic’s LiensMechanic’s Liens

When does owner subject real property to When does owner subject real property to lien?lien?

Contract statesContract states -- lien claimant must show he -- lien claimant must show he was hired by Owner or his agent to furnish was hired by Owner or his agent to furnish labor or materials.labor or materials.

Consent statesConsent states -- sufficient for lien claimant to -- sufficient for lien claimant to show owner had knowledge of and consented show owner had knowledge of and consented to doing work, even if work ordered by person to doing work, even if work ordered by person other than Owner, i.e., Tenant.other than Owner, i.e., Tenant.

[Courts recognize that Landlord is often powerless to [Courts recognize that Landlord is often powerless to prevent Tenants from improving, therefore need prevent Tenants from improving, therefore need affirmative consent of Landlord. (i.e., provision in affirmative consent of Landlord. (i.e., provision in lease permitting additions.)]lease permitting additions.)]

Who is entitled to lien?Who is entitled to lien?

Driven by state statute -- Generally, both Driven by state statute -- Generally, both contractor and subcontractor can recover, contractor and subcontractor can recover, anyone who furnishes labor or materials to anyone who furnishes labor or materials to improve real estate.improve real estate.

In some states, the landowner is responsible In some states, the landowner is responsible for making sure subcontractor is paid even for making sure subcontractor is paid even when landowner has paid general when landowner has paid general contractor in contractor in fullfull and general contractor has and general contractor has NOTNOT paid subs. Always best for landowners paid subs. Always best for landowners to get to get lien waiverslien waivers from general contractor from general contractor beforebefore making any payment. making any payment.

Mechanic’s Liens (cont’d)Mechanic’s Liens (cont’d)

Mechanic’s Liens (cont’d)Mechanic’s Liens (cont’d)

What type of work is covered?What type of work is covered?

Mechanics' liens only available for work Mechanics' liens only available for work which results in which results in permanentpermanent improvements. improvements.

Example:Example:

If contractor installs removable shelving in If contractor installs removable shelving in home which could be removed without home which could be removed without serious damage to home, no lien could serious damage to home, no lien could attach since shelving did not constitute attach since shelving did not constitute permanent improvement.permanent improvement.

Mechanic’s Liens (cont’d)Mechanic’s Liens (cont’d)

What's the procedure for claiming a lien?What's the procedure for claiming a lien?

Every lien claimant MUST record lien Every lien claimant MUST record lien statement with register of deeds specifying statement with register of deeds specifying amount due and nature of improvement amount due and nature of improvement within certain time after work completed. within certain time after work completed. This appears on title work.This appears on title work.

Then claimant must commence an action to Then claimant must commence an action to enforce lien within a limited time period enforce lien within a limited time period after work is completed.after work is completed.

If court decides lien is valid -- property is If court decides lien is valid -- property is sold to satisfy debt.sold to satisfy debt.

QuizQuiz

True/FalseTrue/False

1.1. A declaratory judgment is an award of A declaratory judgment is an award of monies to a plaintiff if he/she wins the monies to a plaintiff if he/she wins the lawsuit.lawsuit.

2.2. A judgment award in and of itself is not a A judgment award in and of itself is not a lien.lien.

3.3. An order of final judgment must be An order of final judgment must be recorded to evidence the satisfaction of a recorded to evidence the satisfaction of a judgment lien.judgment lien.

4.4. Federal tax liens are valid for 20 years Federal tax liens are valid for 20 years from the date of the assessment.from the date of the assessment.

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Quiz (cont’d)Quiz (cont’d)

5.5. A subordination agreement is one in which A subordination agreement is one in which a party agrees that his/her interest in real a party agrees that his/her interest in real property should have a lower priority than property should have a lower priority than the interest to which it is being the interest to which it is being subordinated.subordinated.

6.6. To file a construction lien, there generally To file a construction lien, there generally is a requirement that the lien claimant be is a requirement that the lien claimant be in privity of contract with the property in privity of contract with the property owner.owner.

7.7. A lien waiver is a document indicating that A lien waiver is a document indicating that a subcontractor has been paid and will not a subcontractor has been paid and will not be subjecting real property to liens.be subjecting real property to liens.

FF

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Quiz (cont’d)Quiz (cont’d)

8.8. The statute of limitations to bring a The statute of limitations to bring a foreclosure action on a construction lien foreclosure action on a construction lien typically is of short duration.typically is of short duration.

9.9. A notice of lis pendens is not a lien.A notice of lis pendens is not a lien.

10.10. The only tax lien that is not a general tax The only tax lien that is not a general tax lien is a real property tax lien.lien is a real property tax lien.

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