A lien attachment to a property can play a significant role in the property’s purchase or sale.
This article details how a lien is placed on real estate, what effect it has, and why you need the help of a qualified attorney who knows how to approach and protect you in the process of buying or selling a property that is subject to a lien. Most importantly, we address the effect of a lien on a property being bought and/or sold. As you will see, the effect that liens have on real estate transactions can be extremely discouraging, but with the right attorney, a seeming death sentence to a closing can be avoided.
Property law in New Jersey and real estate transactions abide by a set of rules that give liens much power yet allow for exemptions to be used. Liens will be levied on a debtor’s property for all kinds of reasons and situations. There are many variables to consider when determining a lien’s effect on a desired property. Only an experienced real estate lawyer should be consulted for such a minefield of a real estate market.
Basics of a Debt Obligation
Unless you’re among a select few, sometimes we pay for services after the services have been completed, or need loans, credits, etc. Our credit score and reputation allows others to extend monies/services to us when we are in need. Very rarely will anyone pay in full for a service yet to be completed. Whether your car needs work that requires a mechanic, or your house needs severe repair. This creates a debt obligation. The person performing the service is the creditor, and you, the person receiving the service is the debtor. Payment in full is typically due upon completion.
How a Purchase Money Security Interest Loan Works in New Jersey
Other ways to create a creditor-debtor relationship is to qualify and obtain a mortgage. A Purchase Money Security Interest is a loan extended to a debtor in exchange for certain rights in the property that the debtor is using that same loan to purchase. For example, you ask the bank for a mortgage loan to purchase a home. The bank gives you the mortgage, you sign papers, and you can purchase the home.
The bank now has a security interest in your home, but it does not activate until you stop paying the mortgage payments, or default. Once the debtor defaults, the security interest, or the creditors protection on the loan, activates and the creditor can now use the home (collateral) that you purchased with their loan to satisfy the debt still outstanding to them. This is usually accomplished through a foreclosure auction or sale.
This is just one example of a lien on a property. In general, a lien can be place on any real property you own in New Jersey. Usually, the creditor needs to file a lawsuit in the Law Division of the New Jersey Superior Court – Law Division, but there are certain liens that can be placed on your property just through operation of law.
Different Liens Via Different Means in South Jersey Communities
Liens can be classified into two categories based on the creditor-debtor relationship:
Voluntary liens consist of debtors who agree to the lien on the property in order to obtain a loan, such as a mortgage.
The example above outlining the foreclosure process resulting from the default on a mortgage is sometimes called a standard lien. Standard liens are entered into voluntarily by the debtor and are usually a condition of receiving the loan from the creditor. However, sometimes there isn’t a loan involved at all. Sometimes a person doesn’t pay for services, or fulfill a contractual obligation.
An involuntary lien is not one previously agreed to by the debtor and is the result of an action by the court. Long story short, if a person that does not hold up their end of a bargained-for exchange, the party that has held up their end, can now file a lawsuit against them.
When a creditor does file a lawsuit against a debtor in New Jersey Superior Court, and the creditor receives a favorable verdict or judgment from the Judge, that means that the court has mandated for the defendant to pay money to the plaintiff. The plaintiff, in order to ensure his prompt payment, will ask the Court to render a Judgment Lien on the real property of the debtor, or borrower who has failed to repay the debt owed to the litigating creditor.
In the world of PRIORTY, if a debtor defaults on many different liens but has used the same collateral for all loans, a judgment lien creditor almost always gets their money first out of the proceeds from a foreclosure sale.
Law Division judgments for money damages are a lien against any real estate owned by the defendant in the State of New Jersey. N.J.S.A. 2A:16-1.
Involuntary liens come in many different forms, and some of their common names include:
- judgment liens – as seen above, can only be attached to real property and not personal property,
- tax liens – taxpayer doesn’t pay taxes, government seizes property. However, lenders will sometimes pay your taxes (up to a certain amount) and add those payments to the balance of your loan. This is not because they’re such great people, this is to protect the property. If property taxes go unpaid, the government may initiate foreclosure proceedings in the courts and eventually seize the property, which leaves the lender in the wind without satisfaction of their loan.
- Construction (aka “mechanic’s”) lien – if you fail to pay a licensed service provider for providing a service that they are licensed for, they may file a lien against certain personal property of yours,
- IRS liens and
- child support liens – If you don’t pay to support your children, your former spouse can take out a lien on your property. The lien lives until you pay the outstanding child support debt, the recipient forces a sale, or you refinance the property.
Without question, judgment liens are the most common and most devastating in a real estate transaction.
Judgment Lien’s Timing and Expiration
As per New Jersey Statutory Authority, a judgment lien is enforced for twenty (20) years. Near the end of its life, however, a judgment lien can be reborn! It may be renewed for another twenty (20) years, assuming that the lien was properly docketed with the Court Clerk in Trenton.
They get around, though, in other states, that is. Judgment liens can only attach to real property and not personal property in New Jersey. The debtor’s own real property will be subject to a judgment lien.
How does a Lien Impact a Real Estate Transaction?
When the owner of a property subject to a lien, attempts to sell that property, the buyer is made aware through a title search. Title searches are usually required by mortgage companies so that they know that the property they are financing is not being claimed by any other owners or subject to a liens superior to the mortgage. If buying a home, the seller must always convey marketable title, which is a fancy way of saying that there are no liens, or encumbrances, on the title that would negatively affect your title ownership to the property.
There are many financial devices that can act as a lien upon your property. Home-equity lines of credit, mortgages, etc. Sometimes, paying off the outstanding balance or whatever is required of the lender, will ensure that the lien is lifted from the property. This can be done using the proceeds of the closing, which usually come from another lender providing the financial support to the buyer of a transaction. If there is a lien on a property during a transaction, many different things may result. One thing is for certain, it can be more challenging to reach a successful result.
Do I Really Need an Attorney when Buying or Selling a Property with a Lien?
Maybe you can answer this question yourself, in a real estate market as uncertain and volatile as the one we find ourselves in today, do you plan on ever buying or selling a home? You do? Good luck finding an affordable property not encumbered by a lien or bonafide purchasers that aren’t dissuaded by liens. The economic downturn has caused New Jerseyans to apply and be given more loans, lines of credit, mortgages, etc. than ever before. We all want “the American Dream” but, through no fault of our own, may need a line of credit due to the current economic situation or personal and financial reasons.
Only experienced attorneys who have dealt with the closing process, lenders, title companies, and the like, can foresee what impediment the sale or purchase of your home faces before you get what you want. Buying or selling a home is one of the most stressful and emotionally-trying periods of a person’s life. When all seems to be going perfectly smoothly, all of a sudden, a sudden halt. An experienced attorney has dealt with lienholders before, negotiated terms in order to lift the lien and proceed with the transaction, finds exemptions in which the lien cannot prevent the transaction, and much more. Most importantly, an experienced real estate attorney provides peace of mind.
Contact our Law Firm about a Property Lien Affecting Your Real Estate Deal in Monmouth County, NJ
For your mental, emotional, and physical well-being, as well as that of your family around you, make sure you have a knowledgeable real estate lawyer working on your behalf to ensure your successful route around the lien that may be preventing or impeding your transaction. Without an experienced attorney, the deal can seem over before it begins. Contact Chamlin, Uliano & Walsh if you have concerns about a lien on a property you want to sell, or are interested in buying a property subject to a lien in New Jersey. Our firm has spent the last half a century helping clients with securing successful real estate sales and purchases, as well as other real estate legal matters, in Wall, Red Bank, Asbury Park, Rumson, Lavallette, Freehold, Hazlet, and throughout Monmouth County.
Call 732-440-3950 for a free consultation or to set up an appointment at our West Long Branch office.