* Section 8 Real Estate Lien Encumbrances

Encumbrances

An encumbrance is a burden, limitation on a title, or rights held by someone else in a property.

Think of it as an umbrella with three types underneath:

• Liens (money encumbrance)

• Deed Restrictions

• Easements

Liens (Money Encumbrances)

A lien is created when someone owes money and hasn't paid; the creditor can file a lien against the property.

Classification of Liens

Specific Liens

Apply to one specific item or property.

• Property Tax Lien:

  Lien for not paying real estate taxes.

  Applied only to the property with unpaid taxes.

  Priority: Number one in priority, paid off first at a foreclosure sale, regardless of recording status.

  Real\,estate\,taxes > All\,Other\,Liens

• Mortgage Lien:

  Voluntary lien, using property as security for a loan.

  Specific to the property being mortgaged.

• Mechanics Lien:

  Used by those who make improvements on a property (contractors, plumbers, etc.).

  It applies to the property that has been improved.

  Covers subcontractors and material vendors who are not paid.

  Homeowner Protections: Lien waivers from subcontractors and material vendors.

  Parties Who Can File: General contractors, subcontractors, and material vendors.

Effective Date of Mechanics Lien

The effective date is the date the work first began.

Liens are typically paid off in order of recording, but mechanics liens are the exception.

Example:

Work starts: October 1.

Bill Sent: November.

Lien Filed: December 1.

Effective Date: October 1.

If a second mortgage was taken out on October 10, the mechanics lien (with the October 1 effective date) would be paid before the second mortgage.

General Liens

Apply to all of a person's property (real and personal).

• Income Tax Lien (IRS Back Tax Lien):

  Applies to all assets, real and personal property.

  Priority: Does not take special priority; gets in line based on recording date.

• Judgment Lien:

  For personal debts, covers all real and personal property.

Lis Pendens

Lis Pendens is a Latin term that means "pending litigation." Filed to help creditors.

Filed by a creditor to indicate pending litigation on a property, preventing its sale.

A buyer should conduct a title search to identify any lis pendens.

Writ of Execution

After a lis pendens, a creditor can get a judgment, get the property sold off, and get their money back. This process is called a writ of execution

Court order to the sheriff to seize property and sell it to satisfy a judgment.