What Is a Lien on a House? (+ How It Works)

Disclaimer: PropStream does not offer legal or investing advice. This article is for educational purposes only. We recommend hiring a licensed legal and/or financial professional before investing in or advising clients on real estate subject to liens. 

Liens are one of the most common title issues in real estate—but they can derail a deal if you don’t understand them. Read on to learn what a lien on a house is, how it works, and why it matters for real estate professionals.

What Is a Lien on a House?

A lien on a house is a legal claim against a property for unpaid debts. It gives the lien holder the right to take or sell the home if the homeowner fails to meet their financial obligations, such as paying a mortgage, taxes, or contractor fees.

Liens can be placed on a property by lenders, government agencies, contractors, creditors, suppliers, homeowners associations (HOAs), and utility and service providers.

Types of Property Liens

Property liens fall into two main categories: voluntary and involuntary liens.

A voluntary lien is one that the property owner agrees to, such as letting a lender place a mortgage lien against the house. By contrast, an involuntary lien doesn’t require your consent, such as a tax, judgment, or mechanic’s lien.

Let’s break down some of the major lien types in more detail:

Mortgage Lien

A mortgage lien is placed against a home when the owner borrows money against it. This gives the lender the right to foreclose on the home if the owner fails to repay the loan. Since 74% of all buyers and 91% of first-time buyers finance their home, mortgage liens are widespread.

But it’s not just traditional mortgages that can be impacted by liens. Any loan that collateralizes property can result in a mortgage lien, including home equity loans, home equity lines of credit (HELOC), and second mortgages.

Tax Lien

A tax lien is an involuntary lien placed on a property when the owner fails to pay local, state, or federal taxes. If the taxes remain unpaid, the government could force the sale of the property to recover the debt.

Keep in mind that tax liens take priority over most other liens, meaning they must be satisfied before other lien holders can collect.

Judgment Lien

A judgment lien results from a court judgment that finds a property owner owes money to someone. For example, if a creditor sues a homeowner for unpaid credit card debt and wins, the court may place a judgment lien on the homeowner’s property.

Mechanic’s Lien

A mechanic’s lien is a lien against a property for unpaid construction or renovation work. For example, if a contractor isn’t paid for completed work, they can file a mechanic’s lien against the property they worked on.

HOA Lien

An HOA lien is a lien placed on a property by a homeowners' association (HOA) for unpaid dues or special assessments. If the debt remains unpaid, the HOA may be able to enforce the lien through foreclosure, depending on state and local laws.

How Liens Affect Buying and Selling Property

Properties with liens tend to be harder to sell because most buyers want a clear title. In fact, many lenders won’t even finance a property unless it has a clear title because they don’t want to risk their collateral being seized by another lien holder.

This is why most real estate transactions include a due diligence phase, during which the buyer can hire a title company to look for any unknown liens that could complicate or stop the sale. If a lien is discovered, the buyer can require the seller to resolve it or walk away from the deal.

For homeowners, there are three main ways to resolve liens:

• Pay off the lien. This is the simplest way to resolve a property lien. Verify the debt balance, transfer the necessary funds, and confirm when the lien is removed.
• Negotiate the lien. If you’re unable to repay the full debt, consider negotiating the lien. The lien holder may be open to a reduced settlement or repayment plan, especially if they believe they’re unlikely to collect otherwise.
• Dispute the lien. If you think the lien is invalid, you can challenge it in court. A judge can void the lien if it’s proven to be illegitimate.

Why Understanding Liens Matters for Agents & Investors

As a real estate professional, understanding how liens work is important for your business.

For example, real estate agents who understand liens can help guide clients shopping for homes, set expectations, and prevent failed transactions.

Similarly, real estate investors who understand liens can better assess property risks and factor the cost of resolving liens into their purchase offers.

That said, liens can also be a powerful lead source for motivated sellers. If a homeowner has liens against their property, they may be more inclined to sell at a discount to be free of the financial liabilities associated with their property.

As a result, some investors and agents may focus on tax-delinquent or lien-heavy properties to uncover off-market deals with high return potential.

How Real Estate Professionals Can Handle Liens

To protect yourself and clients, you should invest in thorough title searches.

Most real estate investors work with licensed title companies, which research the property’s title for you and provide title insurance. This insurance protects you (and lenders) against financial loss should a lien be discovered after the sale.

The same goes for regular homebuyers. Real estate agents should advise them to get a professional title search and title insurance before finalizing their home purchase.

Uncover Hidden Liens With PropStream

Ultimately, knowing how to identify and handle liens on properties can lead to fewer surprises, smoother closings, and better deal opportunities.

To uncover hidden liens on properties before investing in a title search, PropStream it!

Our database of over 160 million properties nationwide lets you research ownership details, filter out properties with liens, and discover motivated seller leads in no time. Or, if you’re looking for selling motivation, you can search for properties with liens to generate new listing or investment leads.

The opportunities are endless when you search with PropStream!