General Real Property Law: Liens

Corporate Franchise Tax Liens

State governments generally levy a corporation franchise tax on corporations as a condition of allowing them to do business in the state. Such a tax is a general, statutory, involuntary lien on all real and personal property owned by the corporation.

Properties exempt from paying taxes

The most common exempt properties include government owned land and buildings, parks, playgrounds, churches, hospitals and schools. Some states also allow special exemptions to reduce real estate tax bills for certain property owners such as senior citizens and veterans.

Two types of real estate taxes

general real estate taxes (also called ad valorem taxes) and special assessments or improvement taxes. Both are levied against specific parcels of property and automatically become liens on those properties. Ad valorem is Latin for "according to value." Ad valorem taxes are based on the value of the property being taxed. They are specific, involuntary, statutory liens. General real estate taxes are levied to fund the operation of the government agency that imposes the taxes.

Assessed Value

generally based on the sales prices of comparable properties, although practices may vary.

General Liens

there are basically only three types of ________ liens: judgment liens and all forms of income tax liens (including state and federal income tax) and taxes imposed upon death. All other liens are specific: that is, they attach only to the property specifically described in the lien itself.

The current market value of a property is $255,000 and it is assessed at 35% of its current market value with an equalization factor of 1.25. What is the amount of real estate tax due if the tax rate is $3.50 per $100 of assessed value? $2,756.25. $4,880.26 $3,445.31. $3,904.69.

$255,000 market value x .35 (35%) assessment rate x 1.25 equalization factor = $111,562.50 assessed value ÷ $100 x $3.50 tax rate = $3,904.69 (rounded to the nearest penny). *The assessed value of each property in the area is multiplied by the equalization factor, and the tax rate is then applied to the equalized assessment.*

Mill

1/10th of one cent ($.001). Taxes that are expressed in mills can be computed the same as a tax rate that is expressed in dollars per thousand dollars of assessed value.

Lien

A claim or charge against a person's property as security for a debt. - In other words, if the owner of the property does not pay the sums owing under the lien when due, the holder of the lien may go to court to have the property sold to satisfy the debt. The property that secures the debt is also referred to as collateral. A lien represents an interest in ownership; it does not constitute actual ownership of the property. It is an encumbrance on the owner's title, but unlike other types of encumbrances, it is financial or monetary in nature and attaches to the property because of a debt.

Foreclosure

A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document.

Specific Lien

A lien against a specific parcel of property, such as a mortgage, mechanic's lien, property tax lien or special assessment. A general lien is a lien against all property of the debtor, both real and personal.

Junior Lien

A lien, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same real property. Generally, the foreclosure of a senior lien extinguishes all junior liens, whereas the foreclosure of a junior lien has no effect on a senior lien—that is, the purchaser at the junior foreclosure sale buys the property subject to the senior lien.

Lis Penden

A lis pendens is a public notice of a pending lawsuit that may affect the title to a particular piece of property.

Judicial Foreclosure

A method of foreclosing on real property by means of a court-supervised sale.

Redemption Period

A period of time established by state law during which a property owner has a right to redeem real estate during (the equitable right of redemption) or after ( the statutory right or redemption) a foreclosure or tax sale by paying the sales price, interest and cost.

Mechanic's Lien

A statutory lien based on the enhancement of value theory, created in favor of contractors, subcontractors, laborers and suppliers to secure payment for materials supplied and services rendered in the improvement, repair or maintenance of real property.

Taxes Due Formula: *Assessed value of the property × tax rate = taxes due* Basic tax rate Formula: *Municipality budget ÷ total assessed valuation = tax rate* convert the millage rate (sometimes called the mill rate) into something you can use in a calculation, just use the following formula: Millage ÷ 1,000 = Mill rate expressed in dollars or cents of tax per dollar of assessed valuation Yoegel, John A. (2013-07-09). Real Estate License Exams For Dummies (p. 241). Wiley. Kindle Edition.

A tax rate of .03 or 3% could be expressed as 30 mills or $3 per $100 of assessed value or $30 per $1,000 of assessed value.

Ad Valorem

Ad valorem is Latin for "according to value." Ad valorem taxes are based on the value of the property being taxed. They are specific, involuntary, statutory liens. General real estate taxes are levied to fund the operation of the government agency that imposes the taxes.

Involuntary Lien

An involuntary lien is placed on the property against the owner's will. If the property owner owes money to someone, such as the tax collector, and the owner doesn't pay, a lien is placed on the property. Because this type of lien was placed on the property without the owner's agreement, it is considered an involuntary lien

Equalization Factors

Equalization factors are needed in situations where county property taxes are being collected from several different towns, cities, and villages (municipalities) that are using different assessment ratios within that county. In some jurisdictions, when it is necessary to correct inequalities in statewide tax assessments, an equalization factor is used to achieve uniformity. An equalization factor may be applied to raise or lower assessments in a particular district or county. *The assessed value of each property in the area is multiplied by the equalization factor, and the tax rate is then applied to the equalized assessment.*

Equitable right of redemption

From the date of the delinquency until the day of the sale, the delinquent taxpayer can redeem the property by paying the past due taxes, penalty and interest plus the costs of the sale (court costs and attorney fees). This period of time is referred to as the equitable right of redemption.

Special Assessment Payments

Generally paid in equal annual installments over a period of years. The first installment is usually due during the year following the public authority's approval of the assessment. The first bill includes one year's interest on the property owner's share of the entire assessment. Subsequent bills include one year's interest on the unpaid balance. Property owners have the right to prepay any or all installments to avoid future interest charges. Strict subdivision regulations have almost eliminated special assessments in some parts of the country. Most items for which assessments have traditionally been levied are now required to be installed at the time of construction as a condition of a subdivision's approval.

Enforcement of Tac Liens

If the property is not redeemed within the statutory period, the holder of the certificate of sale can apply for a tax deed (sometimes called a collector's deed). The quality of the title conveyed by a tax deed varies from state to state. In Missouri, the title to property acquired at a tax sale may be questionable until after a suit to quiet title has been completed to extinguish any potential interests of the delinquent taxpayer or creditors.

Arrears

In Missouri, real property taxes are paid in arrears. They are due in December for the calendar year from January 1 through December 31, of the year in which they are paid.

Which of the following is a general lien on all real and personal property owned by the debtor? An income tax lien. A lis pendens. An ad valorem tax lien. A mechanic's lien.

Income Tax Lien General liens include any form of income tax lien (state or federal), estate or inheritance tax liens and judgment liens. Mechanics' liens and real property tax liens affect only the property specifically described in the liens themselves. A lis pendens affects only the property described in the recorded notice.

Judgment Lien

Sometimes just called judgments or money judgments, usually are created as a result of a court action. Say someone sues you for a personal-injury claim, for example, and the court finds in favor of the person who sued you. If you can't pay immediately, the court may place a judgment lien against your property.(general) A judgment is a decree issued by a court. When the decree establishes the amount a debtor owes and provides for money to be awarded, it is referred to as a money judgment. A judgment is a general, involuntary, equitable lien on both real and personal property owned by the debtor.

Special Assessments

Special assessments are taxes levied on real estate to fund public improvements to the property. Property owners in the area of the improvements are required to pay for them because their properties benefit directly from the improvements. -always specific and statutory, -can be involuntary or voluntary liens. -Improvements initiated by a public agency create involuntary liens. -When property owners petition the local government to install a public improvement for which the owners agree to pay (such as a sidewalk or paved alley), the assessment lien is voluntary.

Property Tax

Tax levied by the government against either real or personal property. Real property is taxed according to its value; therefore, the tax is called an ad valorem tax.

Tax Rates

Tax rates in a municipality are based on a calculation involving the budget needs of the community and the total assessed valuation of the community. The municipality must first arrive at a dollar amount for its annual budget, and after that figure is adopted, the municipality looks at its tax base, which is the total assessed valuation of taxable property within the community. So how do you figure out a basic tax rate? Easy! Just remember this formula: Municipality budget ÷ total assessed valuation = tax rate

equitable right of redemption vs statutory right of redemption

The *equitable right of redemption* is the time period before the sale and the *statutory right of redemption* is the time period after the sale within which the taxpayer may redeem the property. Notice that the terms and their corresponding meanings fall in alphabetical order.

Judgment

The formal decision of a court on the respective rights and claims of the parties to a legal action or lawsuit. A judgment that has been entered and recorded with the county recorder usually becomes a general lien on the property of the defendant.

Attachment

The legal process of seizing the real or personal property of a defendant in a lawsuit by levy or judicial order, and holding it in court custody as security for satisfaction of a judgment. Real property is attached by recording a copy of the writ of attachment in the public records. The attachment thus creates a lien against the property before entry of a judgment so that the plaintiff is assured there will be property left to satisfy the judgment.

Priority of Liens

The order in which claims against the property will be paid off (that is, satisfied). In general, the rule for priority of liens is "first come, first served." Liens take priority from the date they are recorded in the public records of the county in which the property is located. Exceptions to this rule: real estate taxes and special assessments generally take priority over all other liens, regardless of the order in which the liens are recorded. This means that outstanding real estate taxes and special assessments are paid from the proceeds of a court-ordered sale first. The remainder of the proceeds is used to pay other outstanding liens in the order of their priority. Mechanics' liens take priority as provided by state law, but never over tax and special assessment liens

Nonjudicial Foreclosure

The process of selling real property under a power of sale clause in a mortgage or deed of trust that is in default. The mortgagee or trustee advertises the property for sale, and the sale is held by the mortgagee or trustee without any court approval being required.

Voluntary Lien

The property owner willingly takes some action that enables the placement of a lien against the property. A mortgage is the most common example of a voluntary lien.

Each property in the improvement district is charged a prorated share of the total amount of the assessment

The share is determined either on a *fractional basis*(four houses may equally share the cost of one streetlight) or on a *cost-per-front-foot basis* (wider lots incur a greater cost than narrower lots for street paving and curb and sidewalk installation).

Lis Pendens

There is often a considerable delay between the time a lawsuit is filed and the time final judgment is rendered. When any suit is filed that affects title to real estate, a special notice, known as a lis pendens (Latin for "litigation pending"), is recorded. A lis pendens is not itself a lien, but rather *notice of a possible future lien.* Recording a lis pendens notifies prospective purchasers and lenders that there is a potential claim against the property. It also establishes a priority for the later lien: the lien is back-dated to the recording date of the lis pendens.

To be Entitled for a Mechanic's Lien

To be entitled to a mechanic's lien, the person who did the work must have had a contract (express or implied) with the owner or the owner's authorized representative. If improvements that were not ordered by the property owner have commenced, the property owner should execute a document called a *notice of nonresponsibility* to relieve himself or herself from possible mechanics' liens. By posting this notice in some conspicuous place on the property and recording a verified copy of it in the public record, the owner gives notice that he or she is not responsible for the work done. (in Missouri- expires 6 months from the date the last work was performed on the job)

Writ of Attachment

To prevent a debtor from conveying title to such previously unencumbered real estate while a court suit is being decided, a creditor may seek a writ of attachment. By this writ, the court retains custody of the property until the suit concludes. First, the creditor must post a surety bond or deposit with the court. The bond must be sufficient to cover any possible loss or damage the debtor may suffer while the court has custody of the property. In the event the judgment is not awarded to the creditor, the debtor will be reimbursed from the bond.

Due Dates for Tax Payments

Usually set by statute. Taxes may be payable in 2 installments (semiannually), 4 installments (quarterly) or 12 installments (monthly). In some areas, taxes become due at the beginning of the current tax year and must be paid in advance (for example, this year's taxes must be paid at the beginning of this year). In other areas, taxes are payable during the year after the taxes are levied (this year's taxes are paid through this year). And in still other areas, a partial payment is due in the year of the tax, with the balance due in the following year (this year's taxes are payable partly during this year and partly during next year).

Special Assement Tax

When only a certain neighborhood or certain property owners benefit from the improvement, it cannot be paid from the general real property taxes and a special assessment must be done to cover the cost.

*Satisfaction of Judgment (or satisfaction piece)*

When real property is sold to satisfy a debt, the debtor should demand a legal document known as a satisfaction of judgment (or satisfaction piece), which must be filed with either the clerk of the court or, in some states, the recorder of deeds. Filing the satisfaction of judgment clears the record of the lien.

Voluntary vs involuntary Liens You either agree to have a lien put on your property or it's put there against your will

You either agree to have a lien put on your property or it's put there against your will.

Subordination Agreement

a written agreement between lienholders to change the priority of mortgage, judgment and other liens. Under a subordination agreement, the holder of a superior or prior lien agrees to permit a junior lienholder's interest to move ahead of his or her lien. In order for the prior mortgage or trust deed to be subordinated, it must contain a provision (or clause) that states that it can be subordinated to the lien or charge of a mortgage or deed of trust to be recorded later.