Types of Liens: The Ultimate Guide for Title and Escrow

When it comes to real estate transactions, title and escrow agents are the unsung heroes. Working behind the scenes, they ensure that the property is free and clear of any liens or encumbrances. 

But to rule the closing process, they have to have an encyclopedic knowledge of all the different types of liens. 

Who has the time to become a walking encyclopedia? 

Well, now you don’t have to. 

Here is the most comprehensive guide on property liens. Organized, categorized, and ready for title and escrow professionals looking to leverage their liens knowledge during closings. 

We’ve included a bonus section on the stumbling blocks that unrecorded liens can be. 

Read on.

What Is a Lien?

A lien is a legal claim or right against a property, usually as a form of security for the payment of a debt or the satisfaction of an obligation. It can arise due to unpaid taxes, outstanding mortgage balances, or unpaid contractor fees. 

In essence, a lien gives the holder the right to take possession of the property if the debt or obligation is not fulfilled. 

This legal encumbrance can affect the property’s sale or transfer, making it crucial for title and escrow agents to be aware of any liens before completing a closing transaction.

Let’s look at the most common types of liens. 

Different Types of Liens

Title and escrow professionals encounter a variety of liens in their work, each with its own implications. These property liens can be broadly classified by scope, imposition, and priority. There are also general and specific liens. 

The scope of a lien refers to the extent of its claim on the owner’s properties. These liens are usually general or specific.

Imposed or non-voluntary liens, such as tax liens and mortgage liens, are common and can significantly impact property transactions. Non-imposed or voluntary liens, like judgment liens and mechanic’s liens, also warrant attention for their potential influence on real estate transactions. 

Finally, lien priority determines the order in which multiple liens will be satisfied in the event of a property sale or foreclosure.

For title and escrow agents, understanding the distinctions means effectively navigating transactions, mitigating risks, and ensuring smooth property transfers, ultimately adding value to their expertise and services.

Now, the deep dive. 

Most Common Types of Property Liens

These are the types of property liens title and escrow agents most often encounter during their work.

Mortgage Liens

Mortgage liens are legal claims placed on a property by a lender as collateral for a mortgage loan. This lien gives the lender the right to take possession of the property if the borrower fails to meet the obligations of the loan, such as making mortgage payments.

a. Primary Mortgage Liens

A primary mortgage lien is the first mortgage taken out on a property. It has priority over all other liens and encumbrances on the property. In the event of foreclosure, the primary mortgage lien must be satisfied before any other liens on the property.

b. Second Mortgages/Home Equity Loans

Second mortgages, also known as Home Equity Loans, are additional loans taken out against the equity in a property, with the original mortgage being the first lien. These liens are subordinate to the primary mortgage lien and are paid off after the primary mortgage in the event of foreclosure or sale of the property.

Tax Liens

Tax liens are legal claims imposed by government authorities when property owners fail to pay their taxes. These liens give the government a legal right to the property as security for unpaid taxes. 

a. Federal Tax Liens

Federal tax liens are imposed by the Internal Revenue Service (IRS) for unpaid federal taxes. These liens can affect all of the taxpayer’s property and assets, including real estate, personal property, and financial assets.

b. State Tax Liens

State governments impose state tax liens for unpaid state taxes. The specific procedures and regulations regarding state tax liens can vary by state, and they can also affect the taxpayer’s property and assets within that state.

c. Local Tax Liens

Local tax liens are imposed by local governments, such as counties or municipalities, for unpaid local taxes like property taxes or city income taxes. These liens are specific to the local jurisdiction and can impact the property and assets within that locality. This is the category where municipal liens fall under, as well. 

Construction/ Mechanic’s/ Materialmen’s Liens

Mechanic’s and Materialmen’s Liens, also known as construction liens, are legal claims filed by contractors, subcontractors, or suppliers who have provided labor or materials for improvements to property but have not been paid. 

These liens serve as a security interest in the property to ensure payment for the work or materials provided. 

Judgment Liens/Judicial Liens

Judgment liens, also known as judicial liens, are court-ordered liens that are placed on a debtor’s property to secure the payment of a judgment. 

When a creditor sues a debtor and wins the case, the court may issue a judgment in favor of the creditor. To ensure that the creditor is able to collect the amount owed, the court can issue a judgment lien on the debtor’s property, which can include real estate, personal property, or financial assets.

a. Attachment Liens

Attachment liens are encumbrances in which a court puts a defendant’s property. The attachment liens are placed before the court takes a final decision to stop the defendant from selling or getting rid of their property. The petitioner asks for this lien to make sure the property stays put until the case is resolved. 

Attachment liens are temporary and are designed to secure the plaintiff’s potential judgment. If the plaintiff is successful in the lawsuit, the attachment lien may be converted into a judgment lien to satisfy the debt.

HOA or COA Liens

HOA or COA Liens: Homeowners’ Association (HOA) or Condominium Owners’ Association (COA) liens are legal claims placed on a property by the respective association to secure payment of dues, fees, or assessments owed by the property owner.

These liens are typically imposed when the homeowner or condominium owner fails to pay their regular or special assessments as required by the association’s rules and regulations (CC&Rs)

a. Regular Assessments Liens 

Regular assessments are recurring fees or dues levied by a homeowners’ association or condominium owners’ association to cover the costs of maintaining common areas, amenities, and services within the community. These assessments are typically set at regular intervals, such as monthly, quarterly, or annually, and are used to fund ongoing operational expenses.

When a homeowner or condominium owner fails to pay their regular assessments to the homeowners’ association or condominium owners’ association, the association may place a lien on the property to secure the unpaid dues. 

This lien gives the association the right to seek repayment by foreclosing on the property or taking other legal actions to collect the overdue amounts.

b. Special Assessments Liens 

Special assessments are additional fees or charges imposed by a homeowners’ association or condominium owners’ association for unexpected or significant expenses that are not covered by the regular assessments. These assessments may be levied to fund major repairs, improvements, or other unplanned expenses that arise within the community.

If a homeowner or condominium owner fails to pay special assessments, the association can impose a lien on the property to secure the unpaid special assessments. This lien allows the association to take legal action to recover the outstanding amounts, including the possibility of foreclosure.

Less Common Types of  Property Liens

Some types of property liens don’t come up as often but are nonetheless important for every title and escrow agent to know. In the mortgage lien category, these are vendor and vendee liens. 

Less Common Mortgage Liens

Here are some uncommon but still worth knowing about mortgage liens. 

a. Vendor’s Liens

A vendor’s lien arises when a property seller provides financing for the buyer to purchase the property. In this scenario, the seller retains a legal interest in the property until the buyer fulfills the terms of the financing agreement. 

If the buyer defaults on the payments, the seller can enforce the vendor’s lien to reclaim the property. Vendor’s liens are less common in real estate transactions but can serve as a form of security for the seller in certain financing arrangements.

b. Vendee’s Liens

A vendee’s lien pertains to the buyer’s legal claim against the property seller. This type of lien may arise when a buyer provides partial payment for the property but does not receive the title or ownership rights. 

The vendee’s lien allows the buyer to assert their legal interest in the property until the full purchase price is paid and the title is transferred. Vendee’s liens are also less common and typically occur in specific contractual arrangements between buyers and sellers.

Less Common Tax Liens

Here are some not-so-common tax liens that title and escrow agents should know about.  

a. Estate Tax Liens

Estate tax liens are imposed by the government when the estate of a deceased person owes federal or state estate taxes. These taxes are typically based on the overall value of the deceased person’s estate and are levied before the remaining assets are distributed to the heirs.

Estate tax liens take precedence over most other liens, including mortgages, and must be settled before the beneficiaries can receive their inheritances. Title and escrow agents should be aware of estate tax liens to ensure that the transfer of property titles and assets from the deceased person’s estate complies with tax obligations.

b. Corporate Franchise Tax Liens

Corporate franchise tax liens are imposed on businesses by state authorities for unpaid franchise taxes. These taxes are typically levied on businesses for the privilege of operating within a particular state. When a business fails to pay its franchise taxes, the state may place a lien on its assets. 

Title and escrow agents should be knowledgeable about corporate franchise tax liens to ensure that any outstanding tax obligations related to a business are addressed during property transactions involving the business’s assets.

Less Common Judgment Liens/Judicial Liens

The less but still impactful judgment liens are as follows. 

a. Child Support and Alimony Liens

Child support and alimony liens are legal claims placed on a delinquent payer’s property by the recipient of child support or alimony. These liens are used to secure unpaid child support or alimony payments. They can affect real property, personal property, or other assets owned by the delinquent payer. 

Child support and alimony liens are less common but can have a significant impact on property ownership and financial obligations.

b. Bail Bond Liens

When a defendant secures a bail bond to secure their release from custody, the bail bond company may place a lien on the defendant’s property as collateral for the bond. If the defendant fails to appear in court or violates the terms of the bail bond, the bail bond company can enforce the lien to recover the bond amount. 

c. Small Claims Court Judgment Liens

Judgment liens resulting from rulings in small claims court are less common but can still affect property rights. When a creditor obtains a judgment in small claims court against a debtor who fails to pay a debt, the creditor may be able to place a lien on the debtor’s property to satisfy the judgment. 

Small claims court judgment liens are a tool for creditors to secure the payment of debts owed to them.

d. Attorney’s Liens

Attorney’s liens may arise when an attorney has provided legal services to a client but has not been paid for those services. In some jurisdictions, attorneys may have a statutory or common law right to place a lien on the client’s property to secure payment for their legal services.

e. Lis Pendens

Lis pendens, which means “suit pending” in Latin, is a notice recorded in the county land records to indicate that a legal action is pending against a property. It serves as a warning to potential buyers or lenders that there is a legal dispute involving the property. 

While not a traditional judgment lien, a lis pendens can affect the transfer of property and is considered less common but impactful in real estate transactions.

Environmental Liens

Environmental liens are legal claims placed on a property by a government agency or other authorized entity to secure payment for the costs of environmental cleanup, remediation, or other environmental liabilities associated with the property. 

These liens are designed to ensure that the responsible party or property owner addresses environmental contamination and covers the expenses related to environmental protection and remediation efforts.

Maritime Liens

Maritime liens are legal claims against a vessel, such as a ship or boat or its cargo, for the payment of debts or claims related to maritime activities. These liens are established under maritime law and provide security to those who provide goods or services to vessels or are involved in maritime commerce. 

Maritime liens are unique as they are attached to the vessel itself rather than its owner, and they have a special status in terms of priority and enforcement.

Liens Enforced on the Property Owner

There are types of liens that don’t directly affect the property, but they pose obligations to the property owner, and that might create issues during the closing process. So, let’s look at some of the personal liens that title and escrow professionals should know about. 

Taxpayer Liens

These liens are enforced on the property owner by government agencies for unpaid taxes, penalties, or interest. Title and escrow professionals need to be aware of taxpayer liens to ensure that all tax obligations related to the property are addressed during the transaction process.

Worker’s Compensation Liens

Workers’ compensation liens may be enforced on the property owner in situations where an employee hasn’t received workers’ compensation benefits. Title and escrow professionals should know about these liens to safeguard against any potential claims related to worker’s compensation.

Possessory Liens

In cases where a person or business retains possession of another person’s property until payment is made for services rendered on that property, possessory liens may come into play. Understanding these liens is important for title and escrow professionals to ensure that the property’s ownership and transfer are free from any disputes related to possessory claims.

General Liens vs. Specific Liens 

Now that we’ve covered the different types of liens let’s look at how the scope of the liens might affect the property’s closing. When it comes to the scope of a lien, there are two distinct types of lien: general and specific, each with different lien types.

General Liens

A general lien refers to a claim on all assets owned by a debtor. If a debtor fails to pay their debt, the creditor can claim any asset owned by the debtor, not just one specific piece of property. The general real estate lien can be imposed on the debtor’s car, land, or even personal property like jewelry or art. 

Specific Liens

On the other hand, specific liens are tied to a particular asset. In other words, if the debtor defaults on their payments, the creditor has a claim only on that specific asset. It’s often the case with mortgages or car loans, which are examples of specific liens.

Difference between Voluntary (Consensual) and Involuntary (Non-Consensual) Liens 

Besides scope, liens are affected by imposition and fall into two categories— voluntary, also known as consensual or non-imposed,  and non-voluntary or non-consensual or imposed liens. 

Voluntary Liens

As the name suggests, voluntary liens are those that a debtor willingly accepts. These liens are typically the ones in which the debtor uses a property as collateral for a loan. A common example of a voluntary lien is a mortgage on a house.

Involuntary Liens

In contrast, involuntary liens are those imposed without the debtor’s consent, often due to unpaid debts or legal judgments. The non-consensual or imposed liens can be issued by a court or arise out of statutory laws.

Types of Lien Priority 

Priority liens refer to the order in which different liens or encumbrances are ranked in terms of importance or priority when it comes to claiming the proceeds from the sale of a property in the event of default or foreclosure. 

The priority of liens determines which creditors or parties are paid first from the proceeds of a foreclosure sale or the sale of the property.

Here’s how liens are divided. 

First Lien

A first lien, often held by the primary mortgage lender, has the highest priority and is the first to be paid from the proceeds of a foreclosure sale.

Second Lien

A second lien, such as a second mortgage or a home equity line of credit (HELOC), holds a lower priority than the first lien and is paid after the first lien is satisfied.

Subsequent Liens

Other liens, such as tax liens, judgment liens, or homeowners’ association (HOA) liens, may have lower priority and are typically paid after the first and second liens are satisfied, in the order of their priority.

Understanding lien priority is crucial in real estate transactions, as it determines the rights of various lienholders in the event of default and foreclosure. 

Bonus Tips on Recorded and Unrecorded Liens

Finally, we turn our attention to the critical distinction between recorded and unrecorded liens and how they affect property closings.

Recorded Liens

Recorded liens are those that have been officially documented or filed with the appropriate government entity, typically the County Recorder’s Office or a similar authority. 

When a lien is recorded, it becomes a matter of public record, accessible to anyone who searches the records. The act of recording a lien provides notice to the public, including potential buyers, lenders, and title and escrow agents, about the existence of the lien and its claim on the property.

Key Insights on Recorded Liens 

1. Public Notice: By recording a lien, the holder ensures that the existence and priority of the lien are known to anyone who may have an interest in the property like title professionals looking to secure a smooth closing.

2. Priority: The priority of recorded liens is often determined by the date of recording. This means that earlier recorded liens generally have priority over those recorded at a later date, subject to certain legal principles and regulations.

3. Impact on Property Transactions: Recorded liens can affect property transactions, as they may need to be satisfied or released before the property can be sold or refinanced.

Unrecorded Liens 

Unrecorded liens, as the name suggests, are liens that have not been officially documented or filed with the relevant government authority. 

These liens do not provide public notice of their existence or claim on the property. Unrecorded liens may arise from informal agreements or contractual arrangements that have not been formalized through the recording process.

Key Insights on Recorded Liens 

1. Limited Public Notice: Because unrecorded liens are not part of the public record, they do not provide the same level of notice to interested parties like buyers, lenders, or title and escrow officers as recorded liens.

2. Enforceability: The enforceability of unrecorded liens may be limited, especially in the context of property transactions. Unrecorded liens may not be readily discoverable by title and escrow officers conducting due diligence on the property.

3. Risk and Transparency: Unrecorded liens pose a risk to property transactions, as their existence may not be readily apparent. Agents working on the property closing should conduct a thorough title search to identify any potential unrecorded liens. Here’s more on how to find a lien on a property. 

Why Should Title and Escrow Professionals Care About All Types of Liens? 

In order to ensure that the transfer of property ownership is conducted smoothly and free from encumbrances, title, and escrow officers need to be aware of all and any types of liens that might jeopardize the closing. 

Here are the advantages of being fully informed on the types of liens for title and escrow.

1. Clear Title Assurance

Being aware of various liens enforced on the property owner allows real estate professionals to ensure that the title is unencumbered and that the new owner will not be liable for outstanding obligations. 

2. Transaction Security

By identifying potential liens that could affect the property owner, title and escrow professionals can take necessary steps to address these encumbrances before the transaction is finalized, providing security to all parties involved.

3. Risk Mitigation

Knowledge of these liens enables professionals to mitigate risks associated with undisclosed obligations or claims that could affect the property’s ownership.

To Wrap Up

If you’ve been looking for a comprehensive take on property liens where all the information is in one place, now you have it. 

We hope title and escrow professionals find value in this ultimate guide and add it to their arsenal of secret weapons for navigating smooth and fast closings.

In the meantime, share this guide with someone you think will find value in it, and sign up for our blog to keep up-to-date with expert tips on property closing.