What is a lien and foreclosure?
A lien is a notice attached to your property that gives everyone constructive notice that a creditor has a claim. A lien is usually filed and recorded with the county public records (for real property) or with the secretary of state (for personal property). Why does a bond help a creditor? Well…in order to sell or refinance the property, the borrower’s lender is going to require clear title to the property as a prerequisite for the loan. Therefore, an existing lien on your home has the negative effect of clouding title and therefore preventing you from selling your property. To clear title to the property, you must pay the lien and have a release on file with the county public records notifying everyone of the discharge of the debt. If the lien is not paid, certain lien holders may choose to foreclose on the property and recover what they owe.
The 7 most common types of links
Property Tax Link: When an owner does not pay taxes on their property, the city or county in which the property is located has the authority to place a lien on the property and force a sale if the taxes are not paid.
IRS link: The federal government files an IRS bond for not paying your taxes. If you have equity in your property, the tax lien may be paid from the proceeds of the sale at closing. If the home sells for less than the lien amount, the taxpayer can request that the IRS release the lien to allow completion of the sale. The taxpayer may also request that a federal tax lien be secondary to the lender’s lien to allow refinancing or restructuring of a mortgage.
Mechanics Link: A mechanic’s lien is a statutory lien that guarantees payment for services and labor and materials related to improvements made to real property. State statutes creating mechanics bonds vary by state. These statutes provide the criteria and circumstances necessary for the creation, filing and improvement of mechanical links. Mechanic’s liens are generally classified as super liens, which means they can be superior to all existing liens previously recorded against real property, including a mortgage lien intended to be a first priority lien.
HOA Link: Homeowners who live in a covenant community will often be required to pay a periodic fee to the HOA to cover upkeep of the community. For example, the HOA will collect fees to pay for things like landscaping, security, or maintenance of common areas like pools, tennis courts, exercise rooms, and clubhouses. To determine the amount each homeowner must pay, the HOA will typically develop a budget and divide the total expenses by the number of homes in the community. The owner must pay the share of it on a predetermined basis throughout the year. In addition, the HOA may impose special assessments for one-time expenses if the HOA’s reserve funds are inadequate. For example, an HOA may impose a special assessment to pay for a new damaged road or to replace a security gate. If the owner falls behind in their monthly payments or special assessments, the HOA will file a lien that will automatically be attached to the owner’s property. This bond clouds the title to the property and it can be seized to settle the debt.
judgment link: A judgment lien is a type of lien that is created by recording when a lawsuit against you is won and then attached to your property to receive payment for the sale of your property.
useful link: A lien placed on a property by the city or utility for non-payment of a utility bill, such as water or electricity.
divorce bond: A lien filed on property as a result of a divorce decree.
Are all the links the same?
No! Links vary in type and priority. Priority is critical to a lender, and the benefits of having a first priority lien, such as a first lien mortgage on the property, are very significant. A lender who owns a primary lien in the form of a real property mortgage is entitled to repayment of its debt with the proceeds of a foreclosure sale prior to the repayment of any secondary lien holders. This is very important because a foreclosure extinguishes all interests in the security (also known as the house) that are less than that mortgage.
What is the foreclosure process?
The foreclosure process differs from state to state. In Florida (a judicial foreclosure state), the lender files a lawsuit by filing a complaint with the clerk of courts and serves it with a summons on the borrower. The lender will include any other lesser lien holders in the lawsuit to exclude their lesser interest, such as co-borrowers or unknown tenants who may have a rental interest in the home. Once the borrower receives the complaint, he has 20 days to file a response. Otherwise, the lender will request a default judgment. However, if the borrower files a response, then the lender will submit subsequent affidavits to support the borrower’s position and rebut any affirmative defenses in the borrower’s response. If the lender was unable to obtain a default judgment, the lender will likely file a motion for summary judgment. A motion for summary judgment can end a case if the lender can show that “there is no genuine issue of material fact and that he is entitled to a trial as a matter of law.” Most foreclosure cases end this way simply because the facts are not in dispute and the right to a judgment is easily established as a matter of law. If the lender wins at summary judgment or at trial if the judge did not enter summary judgment, then the lender is granted a final foreclosure judgment. The judgment sets a foreclosure sale date (usually 60-90 days). It is the responsibility of the lender to publish in a newspaper for two consecutive weeks before the sale the date and time of the foreclosure. Proof of that publication is needed to ensure that all other parties received constructive notice of the sale. At the sale, the property is sold to the highest bidder and the lender receives a credit for the lender’s offer up to the amount of the final judgment. The borrower then has 10 days after the sale to file an objection with the court which issues a new certificate of title to the property in the winning bidder’s name. Once the new certificate of title is registered by the clerk, the previous owner must vacate the property. If the homeowner does not vacate the property, the new owner can evict the old owner by filing a motion for writ of possession and sending the sheriff off the property to execute the writ. The sheriff will post the writ on the property giving the previous owner a 24-hour notice to move. If the homeowner does not move, the sheriff will physically force them to vacate the premises.