What is a Lien?

Simply stated, a lien is a claim or charge upon property (real or personal) for payment of a debt.

What is Marketable Title and How is it Affected by Liens?

Most agreements for the sale of real estate contain a clause that requires the seller to convey “marketable title” or “merchantable title” to the buyer. In essence, “marketable title” refers to a title free of encumbrances. A lien is an encumbrance upon real property, and the existence of a lien on real property renders the title unmarketable.

Perhaps one of the most common types of liens is a judgment lien. If a creditor succeeds in a lawsuit against a debtor, the court enters a judgment in favor of the creditor. A judgment is a judicial declaration that the creditor is entitled to a specified sum of money from the debtor. A judgment lien arises when a judgment creditor follows the procedure set forth in the applicable state law and obtains a judgment lien against the property of the judgment debtor. A lien may be obtained by the judgment creditor as to both real property and personal property of the judgment debtor. The laws governing liens and the recordation of liens vary from state to state.

Types of Liens

A few different types of liens are:

• judgment liens;
• environmental liens;
• equitable liens;
• mechanic’s or materialman’s liens; and
• tax liens.

Priority of Liens

The priority of liens, or the order in which liens must be paid, is governed by federal and state law. Generally speaking, liens in favor of the government have a very strong position in terms of priority. The applicable law must be consulted for further details.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.