How Liens Can Lead To Foreclosure

Lien is one word that any homeowner must be familiar with. It can sometimes spell the difference between keeping a property and losing it to foreclosure.

In simple terms, it may be a security or a burden, depending on the perspective. In the point of view of a lender, it is an assurance that they will be able to collect payments for all of the financial obligations of a homeowner whether directly or through other means. On the other hand, in the point of view of a homeowner, it is an encumbrance on his or her property that will only be lifted once the loan is completely paid. Even worse, it can place a property in foreclosure.

A deed of trust is an example of a lien. Before acquiring a loan, a promissory note has to be signed. The note states that a homeowner will pay the loan completely and in case the homeowner is not able to comply, the lending company may get the payment by foreclosing the property on lien and selling it.

A lien stays attached to a property even after selling or reselling. The only way to free the property from lien is by completely paying the loan. In most cases, buyers do not go for property that has the lien of its previous owner on it.

Buying a home with outstanding lien and taking over the loan is not practical as the property has higher risk of ending up in foreclosure. To prevent this situation, lenders discontinued openly allowing homebuyers to assume an existing loan on a property. They set an application process that has to be satisfied when taking over an existing loan. The process is similar to that of a full loan. This has caused most buyers to opt for simply getting a new loan to avoid the arduous task of taking over an old loan.

A deed of trust, which has the approval of an owner, is an example of a consensual lien. However, there are liens that are attached to a property with or without the consent of the owner. These liens are classified as non-consensual. One example that deems non-consensual lien is when a homeowner fails to pay a contractor. In such situation, the contractor has the right to claim the payment by filing a lien.

Until a lien is settled, the lienholder has the right to place a property in foreclosure. It is therefore important that a homeowner is well-informed about how liens work.

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