- A mortgage lien is a legal claim a lender has to a property until the borrower pays off their mortgage.
- Liens enable mortgage lenders to foreclose on borrower's home if they default on their mortgage.
- Mortgage liens are a type of voluntary lien, meaning the homeowner agreed to have it placed on their home.
On the surface, getting a mortgage looks a lot like getting any other type of loan: A mortgage lender gives you money to buy a house and you agree to pay it back over a certain period of time. If you aren't able to meet the terms of the loan, the lender can take your home as collateral for the money it lost.
But when you look at the process more closely, there's a bit more going on behind the scenes than you might think. To ensure it can recoup its losses in the event that a borrower defaults on their mortgage, the lender places a lien — a type of legal claim — on the property being purchased. This protects the lender, but it can complicate things when selling or buying a house.
Here's what to know about mortgage liens.
How mortgage liens work
Lending an individual hundreds of thousands of dollars or more to purchase a home is risky, so lenders need some assurance that they'll be able to get their money back if a borrower stops making their mortgage payments.
The lien gives lenders the legal right to get their money back by taking ownership of the home and selling it through the foreclosure process.
Creation
A mortgage lien is automatically created when you borrow money to purchase a home and is recorded with the local government to establish the lender's claim to the home. The home will then serve as collateral on the lien, and the lender can seize the home to repay your debts if you don't make payments.
Priority
It's possible to have several liens against a property. When this is the case, the liens will be prioritized, meaning if the borrower fails to make payments, the lenders will claim the house in a certain order.
For example, a first-lien mortgage — which is typically your main mortgage — would take priority. If you defaulted, that lender would get to sell your home off first and take the proceeds to repay your unpaid debt. A second-lien mortgage — like a home equity loan, for example — would come second, with the lender taking any remaining proceeds from the home sale to recoup its losses.
Lien priorities generally go in order of the date the liens were opened. This is called the "first in time, first in right" rule.
Release
A mortgage lien will be removed once you repay the loan attached to that lien. That may mean paying off your mortgage in full, or repaying a home equity loan, HELOC, or reverse mortgage.
Types of mortgage liens
There are two types of mortgage liens: Voluntary and involuntary. Here's how those differ.
Voluntary lien
Voluntary liens are ones that the homeowner has agreed to have placed on their property. For instance, if you apply for a mortgage loan or HELOC and borrow money against your house, that is a voluntary lien. You have chosen to use the home as collateral.
Involuntary lien
Involuntary liens are ones that have been placed on a property without the homeowner agreeing to it ahead of time. These are typically the result of the homeowner failing to pay a debt and can include things ike tax liens, judgment liens, and mechanic's liens, which we'll go into later on.
Impact of mortgage liens
The lien on your home is a public record documenting that a debt is owed on the property.
"The mortgage lien provides public notice that the property cannot be sold with out the consent of the lienholders — which in the case of a mortgage lien, the lienholder is the lender," says Kristina Morales, a mortgage loan officer and founder and CEO of Loanfully
In general, mortgage borrowers won't need to think too much about the lien on their homes as long as they stay on top of their monthly payments, but there are some scenarios when they might come into play.
Buying and selling property
As you learned above, when you buy and finance a property, it creates a new lien on the home to protect the lender. But when it comes to selling a house, you'll need to do the opposite — and get rid of the lien instead.
Technically, you can list your home at any time, but you won't be able to transfer the property to a new owner until your liens are paid off, as these are technically attached to the house (meaning the new buyer would owe them instead of you).
As long as you sell the home for more than your lien balances, though, you can use the sale proceeds to pay off your debts. The lender will then release any liens on your property, and the home's title can be transferred to the new buyers.
Refinancing
When you refinance your mortgage loan, you replace it entirely. The new loan will pay off the old one — satisfying any liens against the home — and the lender will place a brand new lien on the property that must be satisfied.
Foreclosure
If you don't make payments on your mortgage loan (or home equity loan or HELOC), your mortgage lender can foreclose on the house to recoup its losses and pay off the lien.
Other liens that can affect your property
Mortgage lenders aren't the only entity that can put a lien on a piece of property. Other common types of liens include:
Tax liens
If you're delinquent on your income or property taxes, the federal, state, or local government can place a lien on your property.
Mechanic's liens
A contractor can place a mechanic's lien on a home if they've completed work on it and were never paid in full.
Judgment liens
If someone files a lawsuit against you and wins, they can file a judgment lien against your property to ensure they're paid what you owe them.
Homeowners association liens
Your HOA has the ability to put a lien on your home if you don't pay your HOA fees.
Mortgage liens FAQs
A lien is the legal tool that enables a mortgage lender to foreclose on and sell a home when the borrower stops making payments.
You can sell your house, but you won't be able to transfer ownership of the property until you've satisfied any liens against it. You can usually use the proceeds from the home sale to pay off liens, but if you've over-borrowed or your home has lost value, it could be challenging.
Property liens are public record, so you should be able to check with the county clerk's office where the home is located. They will have property records detailing any liens or other problems with the property.
You will likely need to pay off the existing lien before you can get a mortgage on the property. This ensures the lender is protected in case you default.
The lien itself won't impact your credit. In fact, with a mortgage, making on-time payments can actually help your credit. But if you have a late or missed payment, that likely would negatively impact your credit score.
