assignment of a lien

Lien Assignment Process and Procedure

The lien assignment process almost always begins with the owner’s mortgage lender (i.e. bank) commencing a foreclosure on its first deed of trust.  Prior to the bank proceeding to foreclosure sale, it must submit a bid to the Public Trustee’s office.  At that time, investors review the bank’s bid and determine if they would be interested in paying off the bank in exchange for acquiring the property.  This is usually about the same time that investors obtain title work on the property and contact the association, its management company or our office to inquire about the potential purchase of the association’s lien.  Most investors realize that even if no recorded lien exists, the association  still may have an assignable lien by operation of Colorado Common Interest Ownership Act.

Assuming the investor gets in touch with our office (whether directly or following a referral from the manager or association), our firm will contact the board or management company for an updated ledger on the property.  We then review the ledger and add in any time that may have been written off because of a bankruptcy and additional attorney fees that are not yet reflected on the ledger.  We use this information to formulate a lien sale price.  In some instances we will attempt to sell the lien for more than the total amount owed, but we always assign the lien for at least payment in full through the current month.  Following an agreement with an investor to purchase the lien, our office processes the lien sale through the execution of a lien assignment document.  This document sets forth the legal rights and obligations between the investor and the association and allows the investor to acquire property through a redemption process.

If the lien is sold, the association receives payment in full (or occasionally, more than payment in full) and the investor receives all rights associated with the association’s lien.  The investor takes the completed lien assignment to the Public Trustee and files what is known as an Intent to Redeem.  This document tells the Public Trustee that the investor has purchased the association’s lien and corresponding right to redeem at the Public Trustee’s sale.  The investor then tenders payment to the Public Trustee for all amounts owed to the foreclosing lender.  This process is known as redemption.

Following a successful redemption, the investor will take title to the property and will be issued a Public Trustee’s Deed.  This Deed confirms that the investor now owns the property.  It is important to remember that the Public Trustee’s Deed is sometimes issued several weeks after the investor actually takes legal title to a property.  Technically, legal title transfers once all applicable redemption periods expire.  Associations should contact our office if there are any questions about the actual date that a title transferred to an investor.

Usually, investors that acquire association liens through the lien assignment process are interested in rehabilitating the property and reselling it relatively quickly.   However, during the time the investor owns the property, he or she is subject to all the same covenants as any other owner, including the obligation to pay assessments.

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N.Y. Lien Law Section 15 Assignments of contracts and orders to be filed

Source: Section 15 — Assignments of contracts and orders to be filed , https://www.­nysenate.­gov/legislation/laws/LIE/15 (updated Sep. 22, 2014; accessed Jul. 27, 2024).

Accessed: Jul. 27, 2024

Last modified: Sep. 22, 2014

§ 15’s source at nysenate​.gov

Blank Outline Levels

The legislature occasionally skips outline levels. For example:

In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

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Tex. Transp. Code Section 501.114 Assignment of Lien

Source: Section 501.114 — Assignment of Lien , https://statutes.­capitol.­texas.­gov/Docs/TN/htm/TN.­501.­htm#501.­114 (accessed Jun. 5, 2024).

Accessed: Jun. 5, 2024

§ 501.114’s source at texas​.gov

Blank Outline Levels

The legislature occasionally skips outline levels. For example:

In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

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Understanding the Assignment of Mechanic's Lien & Bond Claim Rights

Mechanic’s lien and bond claims may be assigned from one party another. However, whether assignment rights are available will vary by state and circumstance.

In this infographic, you’ll learn what it means to assign lien rights, who’s involved in the assignment of rights, and whether rights are always assignable.

Pledge vs Hypothecation vs Lien vs Mortgage vs Assignment

The difference between pledge, hypothecation, lien, mortgage, and assignment lies in the security charge that can be created on any asset held by a lender against the money lent (usually called the collateral). The type of asset charge defines whether the agreement can be classified as a pledge, lien, or mortgage. Let us see in detail the difference between pledge vs hypothecation vs lien vs mortgage vs assignment.

There are several types of security interests that can be adopted by banks or lenders depending upon the collateral involved and the circumstances. Different forms of creating charges on assets are as follows:

Hypothecation

Short summary table.

Pledge is commonly used for goods or securities such as gold, stocks, certificates, etc. The lender (pledgee) holds the actual possession of such securities until the borrower (pledger) has the borrowed amount with him. Once the borrowed amount has been returned, the securities are returned as well. If the pledger defaults on the loan amount, the pledgee can sell off the goods pledged to him as security in order to recover the principal and the interest amount. In this case risk of lending comparatively reduces because possession of assets is with the lender.

Hypothecation is usually when the charge is on movable assets rather than having a charge on fixed assets. However, hypothecation is different from pledges in the sense that the possession of such movable security stays with the borrower. Hence, in the event of default, the lender is first required to take possession / seize such property or asset in order to recover the principal and interest. An example of hypothecation is vehicle financing, where the lender has the asset that has been hypothecated against the loan with a bank. If the borrower defaults, the bank then takes possession of the vehicle after sufficient notice to recover the money.

Also Read: Hypothecation

Under a lien, the lender gets the right to hold up a property or machinery used as collateral against funds borrowed. However, unless the contract states otherwise, the lender doesn’t have the right to sell the property or the asset if the borrower defaults on the loan. Examples of lien include rent receivable, unpaid fees, etc. It is a right given to the creditor to retain/possess the security until the loan amount g. Since possession is with the creditor, it is the strongest form of security. Lien can be on both movable and immovable property. But generally, lending companies choose to have mortgages on immovable property and lien on movable security like shares, gold, deposits, etc.

Under a mortgage , the legal ownership of the asset can be transferred to the lender if the borrower defaults on the loan amount. However, the borrower continues to remain in possession of the property. A mortgage is usually used for immovable assets (example: house, land, building, or any property which is permanently fixed to the earth or attached to the land). Home loans classify as mortgages.

An assignment is another type of charge on current assets or fixed assets. Under assignment, the charge is created on the assets held in the books. It is another mode of providing security against borrowing. Examples of assignments include life insurance policies, books of debts, receivables, etc., which the bank can finance. For example – A bank can finance against the book debts. The borrower assigns the book debts to the bank in such a case.

To get an idea about the difference between pledge vs hypothecation vs lien vs mortgage vs assignment, refer to the table below.

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Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

5 thoughts on “Pledge vs Hypothecation vs Lien vs Mortgage vs Assignment”

Really simple and so easy to refer .Especially good for nonfinance people who aims to move to general top management .

Thanks for sharing. I really like your explanations.

Tysm sir it helps me easily to understand n differentiate between all type of securities

Really great way illustration. It helped me a lot.

I love the concept; so very easy to understand.

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2013 New York Consolidated Laws LIE - Lien Article 2 - (3 - 39-C) MECHANICS' LIENS 14 - Assignment of lien.

Disclaimer: These codes may not be the most recent version. New York may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

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What Is a Lien?

How liens work, types of lien, the bottom line.

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Lien: Main Types of Claims Against an Asset

A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt.

A creditor or a legal judgment could establish a lien. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.

There are many types of lien that are used to secure assets.

Key Takeaways

• A lien is a claim or legal right against assets that are usually used as collateral to satisfy a debt.
• The creditor may be able to seize the asset that is the subject of the lien.
• Bank, real estate, and tax are three types of lien.
• If a contract on a property is not paid, the lender has a legal right to seize and sell the property.
• Various types of lien can be established, including by a creditor, legal judgment, or tax authority.

Dennis Madamba / Investopedia

A lien provides a creditor with the legal right to seize and sell the collateral property or asset of a borrower who fails to meet the obligations of a loan or contract. The owner cannot sell the property that is the subject of a lien without the consent of the lien holder. A floating lien refers to a lien on inventory or other unfixed property.

Liens can be voluntary or consensual, such as a lien on a property for a loan. However, involuntary or statutory liens exist whereby a creditor seeks legal action for nonpayment. As a result, a lien is placed on assets, including property and bank accounts.

Some liens are filed with the government to let the public know that the lienholder has an interest on the asset or property. A lien’s public record tells anyone interested in purchasing the asset or collateral that the lien must be released before the asset can be sold.

There are many types of lien and lien holder. Liens can be put in place by financial institutions, governments, and small businesses. Below are some of the most common liens.

A lien is often granted when an individual takes out a loan from a bank to purchase an asset . For example, if an individual purchases a vehicle, the seller would be paid using the borrowed funds from the bank. In turn, the bank would be granted a lien on the vehicle. If the borrower does not repay the loan, the bank may execute the lien , seize the vehicle, and sell it to repay the loan.

If the borrower does repay the loan in full, the lien holder (the bank) then releases the lien, and the individual owns the car free and clear of any liens.

Judgment Lien

A judgment lien is a lien placed on assets by the courts, which is usually a result of a lawsuit. A judgment lien could help a defendant get paid back in a nonpayment case by liquidating the accused’s assets.

Mechanic’s Lien

A mechanic’s lien can be attached to real property if the owner fails to pay a contractor for services rendered. If the debtor never pays, the contractor could go to court and get a judgment against the nonpaying party whereby property or assets can be auctioned off to pay the lien holder. Many service providers have the option to place a lien to secure payment, including construction companies and dry cleaners.

Real Estate Lien

A real estate lien is a legal right to seize and sell real estate property if a contract is not fulfilled. Some real estate liens are automatically put in place, such as in the case of a mortgage lien. When a party borrows money from a bank to purchase their home, the bank places a lien on the house until the mortgage is paid off.

However, some real estate liens are due to nonpayment to a creditor or financial institution and, as a result, are involuntary and nonconsensual liens.

There are also several statutory liens, meaning liens created by law instead of those created by a contract. These liens are very common in the field of taxation, where laws often allow tax authorities to put liens on the property of delinquent taxpayers. For example, municipalities can use liens to recover unpaid property taxes .

In the United States, if a taxpayer becomes delinquent and does not demonstrate any indication of paying owed taxes, the Internal Revenue Service (IRS) may place a legal claim against a taxpayer’s property, including the taxpayer’s home, vehicle, and bank accounts. A notice of federal tax lien notifies creditors of the government’s claim and can lead to a sheriff’s sale . A sheriff’s sale is a public auction whereby assets are repossessed and sold, and the generated funds are used to repay a debt to a creditor, bank, or the IRS.

A tax lien also affects the taxpayer’s ability to sell existing assets and obtain credit. The only way to release a federal tax lien is to fully pay the tax owed or reach a settlement with the IRS. The IRS has the authority to seize the assets of a taxpayer who ignores a tax lien. Typically, the IRS uses liens for delinquent taxes as a last resort, following all other options being exhausted, such as collection, installment repayment plans, and settlement.

What Is a Lien on My House?

When you buy a house using a mortgage, the lender has a legal right to seize your property if you don’t pay the mortgage. Your house is basically the collateral for the mortgage loan, and when you borrow money to buy it, a mortgage lien is put on your house until you pay off your mortgage.

What Does a Lien Mean?

A lien is simply the legal right of a lender to sell your property (a house or a car, for example) if don’t meet your contractual obligations on the loan you took out to purchase it.

How Do I Get Rid of a Lien?

You can get rid of a lien on your property, car, or other asset by paying off your loan in full.

A lien is a claim or legal right against assets that are normally used as collateral to satisfy a debt. That lien could be established by a creditor, legal judgment, or tax authority, and it serves to guarantee an underlying obligation, such as the repayment of a loan. If that doesn’t happen, the creditor could then seize the asset that is the subject of the lien.

Internal Revenue Service. “ Understanding a Federal Tax Lien .”

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§ 50–1208. Assignment of lien; form and requirement of assignment; entry and recording of assignment; certificate to holder of first lien.

The rights of the holder of an unsatisfied lien shown on a certificate may be assigned by an assignment in writing, which shall show the name and address of the assignee, the trade name and engine, serial or identification number of the motor vehicle, or the trade name and serial number, if any, of the trailer, and the Recorder’s record number of the instrument, or if none, a brief description sufficient to identify the lien shall be signed by the holder of the lien. Upon presentation of an assignment and a certificate and the payment of the prescribed fee, the Recorder shall enter upon the face of the certificate and upon the card hereinbefore described the Recorder’s record number of the lien which is being assigned, or, if no such instrument is on file, a brief description sufficient to identify the lien, the date of the assignment and the words, “Assigned to,” and the name and address of the assignee, and the date. The assignment shall be attached to the instrument if the instrument has been filed with the Recorder, and, if not, the assignment shall be given a Recorder’s record number and filed by the Recorder and such number shall be entered on the certificate and in the Department’s records. The certificate shall be delivered to the record holder of the 1st unsatisfied lien shown thereon, or his representative.

Assignments vs. Liens In the Personal Injury Context

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A large number of people, attorneys included, don’t know the difference between “assignments” and “liens.”

Why does it matter, you ask? For a number of reasons that will be more obvious when the difference is understood.

An assignment is the easier of the two to understand since, as the name implies, it is an transfer of all or some rights or property to a third-party. Although an assignor cannot ever assign more rights or property than it holds, it can assign less than all of the rights or property subject to the assignment.

An assignment is bears the hallmarks of ownership . That is, an assignee steps into the assignor’s shoes and has the ability to control the rights or property subject to the assignment. This means that the assignee can further assign the rights or property, can sell them, donate them, pledge them as collateral or simply enjoy the rights or property as though they were his or her own; subject, of course, to restrictions in the assignment agreement.

Here is where it will get tricky: an assignment can, in effect, extinguish an obligation to one party by transferring the obligation to another party.

Take, for example, a debt. Assume you owe a friend $10,000 for a car that you bought from him, and you agree to pay it of at a rate of $1,000 a year for 10 years. After two years, however, your friend decides that he really needs money and so he assigns the remaining $8,000 debt to me for $5,000 immediate cash. The debt to your friend is now, in effect, extinguished and transferred to me – that is, you owe me the $8,000.

You may not realize it, but a personal injury claim is a bundle of property rights, and to make matters a little more confusing, some states prohibit assignment of personal injury claims. Now, understand, this is a seemingly narrow restriction and assignment of other rights (such as debts) and property (such as cars) are fully assignable in every state.

What this anti-assignment law in the personal injury context means is that you cannot assign to someone a claim for bodily injury to a third-party. Remember, you can still assign the part of the case that corresponds to property damage, such as damage to your vehicle or personal belongings, and you can still assign any non-bodily injury claims, such as breach of contract or bad-faith.

Now keep that all in mind. What is a lien?

A lien is “[a] charge or encumbrance upon property to secure the payment or performance of a debt, duty or other obligation,” and it “ is distinct from the obligation which it secures .” Matlow v. Matlow , 89 Ariz. 293, 297-98, 361 P.2d 648, 651 (1961) (citing 53 C.J.S. Liens § 1, at 826). In Arizona, a lien can be created by statute, but an equitable lien may also arise from an express contract if the parties indicate an attempt to charge particular property as security for an obligation. Kalmanoff v. Weitz , 8 Ariz.App. 171, 172, 444 P.2d 728 (1968).

Unlike assignments, there is no prohibition on liens against personal injury cases, but this subject matter creates a great deal of confusion. Admittedly, what has contributed to the confusion is that the law has undergone centuries of perversion and that it is sometimes hard to tell the difference between an assignment versus a lien on a personal injury claim.

The courts examining this issue have often overlooked the distinction and, typically, have incorrectly deemed simple liens to be prohibited assignments without examining the real character of the transaction. To be sure, there are decisions that uphold standard (non-statutory) medical liens between a doctor and patient for services, and opinions which preclude insurance companies from recouping payment made to those same doctors as being impermissible assignments. These decisions are irreconcilable and fail to appreciate the difference between an assignment versus a lien on a personal injury claim.

Simply put, such arrangements – e.g. , where someone is due money for services rendered – are permissible liens on a personal injury claims. That is, where an injured person owes money to a third-party and agrees to secure the debt with an encumbrance upon proceeds in a personal injury claim, the third-party does not own or control the personal injury claim (as they would had there been an assignment) and the personal injury claim remains “distinct from the obligation which it secures.” The third-party has no say in how the claim is handled, does not need to assent to the settlement of the claim and will not be a party to signing a release of such a claim, which would be hallmarks of an assignment. To the contrary, if the injured party loses the personal injury suit, the “distinct . . . obligation” remains and must still be satisfied (absent an agreement making the debt or obligation contingent upon an event, such as prevailing in a personal injury action). In contrast, assignment of a losing claim would always result in an assignee receiving nothing (with the obligation having been extinguished upon the assignment).

Due to the anti-assignment case law, which is inconsistently applied, this causes confusion in personal injury cases. Although we are not going to ever resolve the issue here, it helps to remember the reason for anti-assignment law in the personal injury context is to prevent “trafficking in personal injury claims.” That is, the courts long ago decided that it was not acceptable for people to market in buying and selling personal injury actions, ostensibly because of the unsavory possibilities of having injured people victimized by those wishing to purchase such rights. In reality, it has more to do with the image of justice and the likelihood that it would encourage fraudulent personal injury claims.

Ironically, the quiet exception to the rule prohibiting assignment of personal injury claims is that attorneys are permitted to take contingency fees on personal injury claims, which (if you believe what you read about other so-called impermissible assignment arrangements) is nothing more than an assignment of a personal injury claim. It used to be that such arrangements were considered impermissible, but after many years the courts relented an allowed contingency fee arrangements in all but criminal and divorce proceedings. In those cases, courts still felt that there was too must risk to allowing contingency fees — that contingency fees would encourage unethical or unsavory conduct in criminal and divorce cases.

The reason contingency fees are allowed to attorneys, however, is to open the door to parties who would not otherwise be able to afford paying for attorneys on an hourly basis. And, most often, the same reason underlies lien arrangements for injured persons, whether it be health insurance liens, contractual doctors liens, liens for pharmaceutical expenses, liens for rental cars or liens for cash advanced to pay bills. Accordingly, although courts have long misunderstood and confused the difference between impermissible assignments and permissible liens, the simple fact is that such liens are a necessary element in modern personal injury practice to provide immediate care and compensation to impecunious injured parties who cannot afford to battle for years with an insurer for a tortfeasor. Such arrangements to not give rise to the concerns underlying the old anti-assignment laws and, in fact, do not reveal ownership characteristics of assignments.

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Assignment of Mechanics Liens (But Not The Right to Lien)

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This makes sense.  In practical, straightforward terms, in order for a mechanic’s lien to be assigned, there must actually be a lien to be assigned.  Generally speaking, a party may not assign their right to file a mechanic’s lien – only a lien they already have.  Again, this makes sense when considered against the background of what a mechanic’s lien is.  A mechanic’s lien is personal in the sense that it is a right that can be exercised only by the person in whose favor the right arises.  If you didn’t do the work, you don’t have the right to lien, but you can be assigned a lien that has already been created.

This may seem simple enough, but it can be a little tricky semantically. By buying a mechanic’s lien you are buying the right to proceed against the property under the lien – but you cannot just buy the right to file the lien in the first place.

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A lien is a legal claim or right against a property that secures a loan. If you are a lender, liens are an efficient way to ensure debt repayment. If you are a borrower, they are a stressful intrusion on your lifestyle that may strip you of your assets.  

If you do not repay your debt, the lien holder can seize and sell your property. For example, the bank can place a lien on your house if you don’t pay your mortgage. This means the bank can take your home to recover the money you owe.

In this article, we’ll explain the different types of liens and how to resolve them.

• Impact on Finances
• Resolving a Lien

Types of Liens

Liens can vary depending on the type of property or debt involved. Here, we will look at property liens, including mortgages, car loans, and personal property liens. Additionally, we will cover tax, judgment, and mechanic’s liens, which arise from unpaid taxes, court judgments, and unpaid labor bills, respectively.

Property Liens

Property liens are claims against real estate and similar assets. If you do not repay your debt, the individual or lender you owe can place a lien on your property. This means they have a legal right to your property until the debt is paid. There are different types of property liens based on the kind of debt.

A mortgage is a common type of voluntary lien. When you get a mortgage, you borrow money to buy a house. In return, you agree to give the lender a lien on the property.

The lender can seize your home if you don’t make your mortgage payments. This lien remains in place until you pay off the mortgage entirely.

This type of lien is voluntary because you agree to it when you sign the mortgage papers. It is part of the agreement to get the loan.

The lien ensures the lender can recover its money if you fail to repay the loan. This makes it easier for lenders because they know they can get their money back.

Another voluntary lien is when you use a loan to buy a car. The lender stakes a claim to the vehicle by placing a lien on it, meaning the car is now part of the lien process until you settle the loan.

The lender may get a judgment for the whole amount — a deficiency judgment — if the car’s repossession and sale do not net enough to cover the balance you owe.

The lien stays against the car until you repay it. You’ll need to pay the lender first if you try to sell the vehicle. 

Personal Property Liens

Lenders may place liens on real estate, cars, and other valuable items such as art and jewelry. For example, if you borrow $2,000, you can use a piece of art or similar property worth that amount as collateral.

If you cannot repay the loan later, the art becomes the lender’s property.

This type of lien ensures the lender can get their money back if you don’t pay. Just as with a home mortgage or a car loan, the lender has the right to seize and sell the property you borrowed against. 

Tax and Judgment Liens

Tax and judgment liens are legal claims on your property arising from unpaid debts. These liens ensure you pay taxes and court-ordered debts and can have serious financial consequences if not addressed.

When you do not pay your taxes , a government authority may place a tax lien on your property. This can be for any of the three tax types — federal , state, or local. The government has a legal claim to your property and can sell your property to recover the unpaid taxes.

Tax liens damage your creditworthiness, making it difficult to establish a line of credit with lending institutions. The process can also culminate in losing your property. Unresolved tax liens can remain on your credit reports indefinitely.

Judgment Liens

A judgment lien occurs when a court determines that you must pay someone a certain amount. This includes court-mandated child support and damages awarded in a lawsuit. If, as a judgment debtor, you don’t pay your debt, the creditor can enlist the legal authorities, such as your local sheriff, to seize your property and sell it to pay the debt.

The financial consequences of judgment liens can be profound. They can significantly impact your credit score and make it difficult to do much with your property. An excellent way to avoid serious trouble with a judgment lien is by paying off the underlying debt as soon as possible.

Recent Changes

On July 1, 2017, credit bureaus made a significant change to improve the accuracy of credit reports . This change was part of the National Consumer Assistance Plan (NCAP). It resulted from agreements with state attorneys general and the Consumer Financial Protection Bureau (CFPB). 

It states that public records such as tax liens and civil judgments must include detailed personal information, such as your Social Security number or date of birth, to appear on your credit report. Many older records lack this information, so the credit bureaus have removed many liens from consumer credit reports.

In fact, Experian, Equifax, and TransUnion removed about 50% of tax liens and most civil judgments from credit reports. This change reduces errors and makes reports more accurate.

Financial Impact of Liens

Liens can be seriously distressing and problematic because they may lead to personal property or home loss. Individuals facing this situation should seek support not only to help protect them financially but also to plan a way out of what could become an ongoing issue.

Credit Score Damage

Negative entries on your credit report include liens. They appear in the public records section, showing that you have an outstanding debt covered by law. Having this in your credit report signals lenders that you are a credit risk.

Your credit score can severely drop when you carry a lien. You may lose around 100 points, although this isn’t set in stone; the effect can actually be even worse.

Liens can remain on a credit report for a long time, up to seven years from the filing date. Tax liens that you have not paid can linger on your reports indefinitely. They can make it challenging to borrow money or get approved for good credit cards. 

Property Sale Restrictions

Buying and selling property is a complicated process, made even more difficult by the existence of liens. Before a sale can proceed, the seller must clear up any and all liens on the property.

Disclosure Requirements

Disclosure laws are a list of requirements of what must be known about a property put up for sale. Property owners have a legal duty to disclose certain things about a property to its buyer. 

Unlike the law on advertising, which is generally riddled with exceptions, the duty to disclose is far more concrete. It requires that you, at minimum, let a buyer know of certain simmering controversies around the property or claims against it.

Impact on Sale

The sales process can become complicated when a lien is involved. This is because the sale can’t close until the lien is resolved. Since it’s attached to the property, the lien will remain in place regardless of who the buyer is.

A property with a lien conveys a financial risk to the prospective buyer. This should give buyers pause, which may mean that a property takes longer to sell and potentially sells for less.

Liens add a layer of complexity that the prospective buyer must carefully consider.

Payoff at Closing

A lien can delay the closing and complicate the resolution. The seller often knows the amount of the lien at this stage, but the buyer might not.

Not only must the lien be paid off, but you must also prove that you have paid it in full. 

The closing agent or attorney ensures the lien is fully paid before the property can be transferred to the buyer. It is of utmost importance to guarantee lien-free ownership to the purchaser.

Effect of a Mechanic’s Lien

A contractor or builder can place a mechanic’s lien on a property when they don’t receive full payment for their work. This type of lien can prevent the sale of the property until the debt is paid. 

It can also affect the property’s value and marketability. Suppose you are buying a property with a mechanic’s lien.

In that case, you must resolve it before purchase to avoid taking on the previous owner’s debt. 

Poor Personal Loan Rates & Terms

Personal loans may be secured by property, securities, or cash. As with mortgages and auto loans, the lender can place a lien on the loan’s collateral.

Collateral Requirement

Lenders require collateral for secured loans. Collateral is an asset, such as a car, house, securities, or cash, that you offer the lender to secure the loan. The lender can seize the collateral to recover the money if you fail to repay the loan, 

Collateral reduces the risk for the lender and often allows consumers to get better loan terms, such as lower interest rates. Offering collateral can also help you get approved for a loan if you have a lower credit score .

Interest Rates

Liens can impact the interest rates on your loans. Lenders see you as a higher risk if you have a lien on your property. This is because a lien indicates you have unpaid debts. 

As a result, lenders may charge higher interest rates to offset this risk. Higher interest rates mean you will pay more over the life of the loan. Clearing liens before applying for new loans can help you obtain better interest rates.

Risk of Default

The lender can take legal action to recover their money if you default on a loan. For secured loans, the lender can seize the collateral you offered. 

For example, if you use a car title as collateral and default on the loan, the lender can repossess your vehicle. For unsecured loans, the lender can place a lien on your property or take other legal actions to collect the debt. 

Defaulting on a loan can also damage your credit score, making it harder to get loans in the future. 

How to Resolve Liens

You can resolve a lien by repaying it or disputing it. Paying off the debt is straightforward, whereas disputing liens can be tricky unless you have documentation to back up your story.

Pay Off the Debt

Paying off debt is the most direct way to resolve a lien. The following list outlines the main methods to pay off liens. These include negotiating a settlement and obtaining a lien release:

• Pay Off the Debt: Confirm with the lienholder the total amount of money you owe. Ensure that you pay through the proper channels and follow any specific instructions. Keep a detailed record of all the communications and payments, as you may need it later. Request a written confirmation from the lienholder that your payment is complete.
• Settlement Options: Talk directly with the lienholder about the possibility of settling your debt for less than the total amount. Clearly explain your financial situation to the lienholder and offer them a sum based on what you can afford to pay. Work to reach an agreement with the other party detailing the reduced amount and payment terms.
• Release of Lien: After the lien is paid off or settled, request a lien release document from the lienholder. Ensure the lien release document is notarized if required. File the lien release document with the appropriate local government office, such as the county recorder or land registry. Keep a copy of the filed lien release document for your records to prove the lien has been resolved.

Paying off a lien can be expensive, but failing to do so can be highly damaging and, ultimately, cost more money.

How to Dispute a Lien

Disputing a lien involves identifying errors, seeking legal help, and following a formal resolution process. The list below outlines these steps to help you effectively contest and resolve a lien on your property:

• Identify Errors in Filing: Ensure the lien document is free from ordinary errors, such as amounts that need to be correctly entered, wrong dates, or names that need to be spelled correctly. Collect evidence that allows you to prove that the errors exist and are not simply your attempt to gain an advantage. If what you are trying to prove doesn’t look ironclad, don’t include it. 
• Legal Assistance: Suppose the lien is incredibly complicated, or the lienholder is stubborn and won’t fix any mistakes. In that case, you should consider seeking legal help. An attorney can help you better understand your rights. Ideally, you may need to find a real estate attorney or a property lawyer with experience with lien litigation.
• Resolution Process: First, you should make your disapproval of the lien known to the lienholder. Furnish them with all the proof you have that they’ve made a mistake. Make your case to the governing office at the local level responsible for recording the lien. Follow up to ensure the process reaches a conclusion.

If you contest a lien, you should have a valid reason. Otherwise, you’re just wasting time and money.

Liens Have an Important Purpose

Liens are financial tools that lenders or the government can use to protect their interests. Though they can be frustrating for the debtor, they allow access to better loan terms and interest rates and allow them to use their property while the loan is being repaid. 

They also add an extra layer of protection against financial fraud, allowing people owed money due to legal settlements or unpaid work to get at least a portion of the money they are entitled to. 

To protect your property and your credit score, it is essential to stay on top of any debts. Otherwise, your creditor may sell your property, leaving you high and dry.  

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What is a Collateral Assignment of Mortgage and How Do You Handle It?

Imagine you're ready to insure the sale of a property, from Vincent L. Gambini to Mona Lisa Vito. Everything seems straightforward – there's a mortgage to be satisfied, but that's standard procedure. However, the title commitment mentions an additional requirement: a "Collateral Assignment of Mortgage" involving Wahzoo City Bank and Brooklyn Bank.

What's a Collateral Assignment? Think of it as a loan within a loan. Wahzoo City Bank didn't simply sell the Gambini mortgage, they used it as collateral to secure their own loan from Brooklyn Bank. So, Brooklyn Bank has a stake in the transaction.

Why Does This Matter? Is a simple mortgage satisfaction enough? No, you need both. The Collateral Assignment of Mortgage served as security for a loan from Brooklyn Bank to Wahzoo City Bank. Simply satisfying the Gambini mortgage doesn't clear Brooklyn Bank's interest. They need to be satisfied too, either through:

• Satisfaction of the Collateral Assignment: Brooklyn Bank acknowledges they no longer have a claim on the mortgage.
• A Reassignment: Brooklyn Bank assigns their interest in the Gambini mortgage back to Wahzoo City Bank.

Watch Out for Hidden Assignments The document might not be titled "Collateral Assignment" – it could just be an "Assignment of Mortgage." Don't be fooled. Carefully review the document's content. Was it an absolute transfer of the underlying loan, or was it used as collateral to the assignor? Remember, a little extra vigilance can save you a big headache down the road.

Whether you’re dealing with a complex commercial transaction or a property sale with collateral assignment, it’s crucial to have a dependable underwriter to help you navigate the complexities that arise in real estate transactions. If you encounter a situation like this, or anything else seems unclear in the title search, don’t hesitate to contact your underwriter or Stewart agency representative. We’re here to support you and ensure a smooth closing for you and your clients.

For more information, reach out to your local Stewart representative or visit virtualunderwriter.com for up-to-date information on the latest in underwriting.

If you are a Stewart Trusted Provider, feel free to contact your Stewart underwriting counsel with questions.

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