Just like I did with escrow, every Monday I’m going to have a Word of the Day. This is where I take a word, term, or phrase and I translate it from confusing legal talk and make it easier to understand for the layman and everyday American. Today’s word is no easy task because I’m going to explain to you what a lien (pronounced “lean”) is and how it affects you.
A lien is when somebody, usually the government, basically holds something that you have hostage until you can pay off a debt, which is usually for whatever the thing in the lien is. Most often you will hear the term when talking about property, mortgages, or with things relating to the home.
So why are liens used? Liens are used because repossession of the item is either impossible or too complicated to conceivably work. If you default on the payments of your car, or on an ATV the government repossesses and takes the item away from you because you’re not able to pay for it; but since it’s relatively impossible to take away a home or a plot of land, the government puts a lien on it. You still have the item in your possession, but it’s not legally yours. When you have a lien on your house or property you must pay that off before you’re allowed to change the title over to a new owner, so make sure you pay it off before selling otherwise you’re gonna be in a world of trouble
So what kinds of liens are there? Short answer is a bunch, but the big ones are Tax Liens, what I’ll call “Attorney Liens”, and Mechanic’s Liens
Tax Liens: These are liens imposed by the government because of defaulting on your taxes. Again, these are usually property taxes more so than your regular “I need to file these by April” taxes. One of the ways that the government will pay for this is to put a lien on your wages, which means that a certain percentage of your paycheck goes to paying the debt off and you don’t have a choice in that.
Attorney Liens: I’m calling these attorney liens only because they are put into place because someone hired an attorney to force it. This is most common with property owners or landlords, and they’ll put a lien on an apartment or condo because the tenant isn’t paying their rent. When it comes to the renters of that condo they won’t be able to get out of their lease or move without the lien being paid.
Mechanics liens: These are the liens that apply to construction and contractors. One of the main reasons we created Safepact was because we were tired of hearing stories of homeowners getting hurt by contractors who steal from them. However, another reason we created Safepact was to protect good, honest contractors from being drug along by homeowners who can’t pay for their repairs; it’s this situation that the mechanics lien was created for. A mechanics lien puts a lien on something that is inside of a house due to a repair or upgrade. If a homeowner gets new cabinets and, for whatever reason, cannot pay the contractor the money that was agreed on in the contract, the contractor can put a mechanics lien on the cabinets until he gets paid. It’s also very possible that a mechanics lien can be put on a contractor by a supplier (the place he got your cabinets from) because the contractor was running himself too thin with jobs, but that wouldn’t affect you as a homeowner as long as you paid your contractor.
Liens can get very confusing, and a lot of the language associated with liens can make them even MORE confusing so I hope that this clears up a lot of confusion about what a lien is and what it means to you. If you have any other questions or a suggestion for a new word of the day contact us here or on facebook.
Stay tuned next week for a new word! Build safe out there!