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Understanding Liens: A Comprehensive Guide by O1ne Mortgage

In this article, we will cover:

• How Does a Lien Work?
• What Are the Different Types of Liens?
• Does a Lien Appear on Your Credit Report?
• What Happens if I Don’t Pay a Lien?
• How an Unpaid Lien Can Negatively Impact Your Credit
• How to Remove a Lien

How Does a Lien Work?

A lien is a legal claim that allows a creditor or lender to take possession of your property or assets if you fail to repay a debt. Homeowners with mortgages are familiar with liens, as their property is subject to one until the mortgage is fully paid off. Liens serve as a safeguard for lenders and a means for creditors to collect unpaid debts.

Types of Liens

Liens can be categorized into two main types: voluntary and involuntary.

Voluntary Liens

These are liens you agree to, such as those associated with mortgages or car loans. For instance, when you take out a mortgage, the lender has the right to seize your home if you default on the loan. This lien is removed once the debt is fully paid.

Involuntary Liens

These are third-party claims against your assets that you do not consent to. Typically placed by a court, involuntary liens give creditors a legal claim to what they are owed and can result in foreclosure if unpaid.

Different Types of Liens

Several types of liens can be filed against you, both voluntary and involuntary:

Real Estate Lien

This lien allows a creditor to seize and sell real estate property if someone defaults on an agreement. Mortgages are common examples of real estate liens.

Bank Lien

A bank lien gives a bank the right to assets pledged as collateral for a loan, such as a home or car. The bank can seize and sell the collateral if the debt is not repaid.

Tax Lien

Tax liens are involuntary and placed on your property if you fail to pay state or federal taxes. These liens take priority over all others and can result in the forced sale of your property.

Judgment Lien

Placed by a court, a judgment lien is established when a creditor proves you owe them money. If your property is sold, the lienholders are paid from the sale proceeds.

Mechanic or Construction Lien

Filed through court, these liens are placed against real property for unpaid work performed by a contractor or subcontractor.

Child Support Lien

Most states allow liens on a parent’s property for unpaid court-ordered child support. These liens can attach to real estate, vehicles, bank accounts, and other valuable assets.

Does a Lien Appear on Your Credit Report?

As of 2018, liens no longer appear on credit reports. However, loans associated with real estate and bank liens are still listed. The three national credit bureaus—Experian, TransUnion, and Equifax—removed records of civil judgments and tax liens due to reporting inaccuracies.

What Happens if I Don’t Pay a Lien?

If you fail to pay a lien, your lender or creditor can seize the property or asset to cover the debt. For example, if you don’t pay a mortgage lien, the lender could foreclose on your property and sell it to recoup their loss. Non-mortgage lien foreclosures are rare but possible.

How an Unpaid Lien Can Negatively Impact Your Credit

While unpaid liens don’t appear on your credit report, they can still harm your credit. Lenders report your payment history to credit bureaus, and non-payment can appear on your credit report, affecting your credit score. Unpaid liens can also appear in public records, impacting your ability to qualify for new credit.

How to Remove a Lien

To remove a lien, you generally have a few options:

• Pay off the lien: Contact the lienholder to determine the exact balance and set up a payment plan if necessary. Once repaid, have the lender sign a lien release document and file it at your local county recorder’s office.
• Negotiate a reduced settlement: If you can’t repay the debt, negotiate with your creditor for a reduced amount in exchange for a lump sum payment.
• Dispute the lien: If you believe the lien is invalid, take the matter to court. A judge may dismiss it if the lienholder can’t prove its validity.

Pay Attention to Your Credit

While liens don’t appear on credit reports, missed payments do. These can damage your payment history and credit score. Make consistent, on-time debt payments and keep credit card balances low to maintain a healthy credit score. Stay on top of your credit by getting your credit report and score for free from Experian.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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