Real Estate, Level 4, Chapter 4 - LIENS
Filing a mechanics lien
*To obtain this lien, parties must work under contract (including implied contracts) with the owner of a property or the owner's representative. Parties don't have to go to court to file this lien, but they do need to file it within the deadline. Every state has different rules about how to file. *In Georgia, contractors, subcontractors, material suppliers, architects, laborers, machinists, engineers, manufacturers of machinery, and renters of equipment can all file mechanic's liens. *
mechanics lien
*involuntary *specific is a type of involuntary, specific lien that a mechanic or materialman can impose upon a property if the property owner fails to pay for materials or work done on the property
mortgage lien
*voluntary *guarantees possession of the property to the lender if the borrower does not make the required payments *they only apply to the property that is secured by the debt.
Who uses Ad Valorem taxes?
1. Counties 2. Cities 3. Towns 4. Districts containing parks 5. Hospital districts 6. Water districts 7. School districts
specific liens
1. Mortgage lien 2. Mechanic's lien 3. Vendor's lien 4. Vendee's lien 5. Bail bond lien 6. Municipal utility lien
How liens affect a sale:
A borrower can't sell their lien-laden home unless: The borrower pays off the lien to clear it on or before closing day, OR The buyer is willing to buy a home that has a lien on it (less likely)
mechanics lien EXAMPLE:
A homeowner might hire a contractor to add an additional room to their home. If the homeowner refuses to pay after the work is completed, the contractor may enforce a mechanic's lien against the property. A court can even force the homeowner to sell their home (as long as it's not a homestead) to satisfy the debt. When the home is sold, the contractor will receive compensation.
judgment liens
A lien due to a court decree resulting from a lawsuit. *generally, involuntary *valid for 10 years, and can be renewed for 10 more yrs.
A city has plans to add sidewalks to a particular neighborhood. What is most likely to happen?
All affected homeowners must pay the special assessments or else have a tax lien placed on their property.
exempt property
Certain kinds of property are exempt from attachments, meaning an attachment lien can't be put on them and they can't be seized while awaiting a judgment.
This kind of lien is always the senior lien. It's a general, involuntary lien. What is it?
IRS tax lien
confession of judgement
If a person owes money to someone and allows a judgment to be entered against themselves via a written statement (instead of legal proceedings) *considered a voluntary lien
vendors lien EXAMPLE:
Let's say that Lauren sells her property to Hillary, but Hillary does not pay Lauren the full price. In this case, Lauren can place a vendor's lien on the home and can maintain the lien and right to repossess the home until Hillary pays the full price to her.
How are liens prioritized?
Liens are prioritized in the same order in which they were recorded, with the exception of taxing entities taking priority over others.
PITI
Principal, Interest, Taxes, Insurance *also known as, the monthly payments you make on your property
an estate
The assets that a person leaves behind when they die: 1. Property 2. Annuities 3. Life insurance Estates are subject to an estate tax.
special assessment districts
These are the defined geographic areas that will be affected by the projects.
What is TRUE of mechanic's liens?
They attach to the property on which work was done and last for one year.
deceased person's debt
When a person passes away, any debts they have must be paid. This responsibility will fall to the executor of the person's will if they have one, or to the probate court if they don't. Debts are paid using liquid assets (like money in a bank account) if possible. If the deceased person's cash reserves won't cover the debt, real and personal property will be liquidated.
tax liens
a lien that is imposed against property if the property owner becomes delinquent in the payment of taxes.
What is a lis pendens?
a notice used to inform the public when a lawsuit is filed that affects a specific piece of real estate
A lender refinancing a principle loan wants their loan to be the senior lien. What would other existing lien-holders sign to make this happen?
a subordination agreement
A mortgage is an example of:
a voluntary lien
The term "ad valorem" means:
according to value
1. enforceable by a court officer or the sheriff if the accused property owner does not appear in court 2. put up in the form of real estate in lieu of cash when a property owner is accused of a crime
bail bond lien
evidence an owner's debt and obligation to pay the debt
liens
if a repairman has done work on the property and has not been paid
liens
first mortgage lien/preferred lien
means that (other than tax liens) no other major liens against the property can take priority over the mortgage lien.
This lien is an involuntary, specific lien applied by a materialman (material person?) to a property that owes them money for work done on the property.
mechanics lien
This lien is voluntary and specific. It's the most common kind of lien there is, and it usually takes first position after any tax liens. What kind of lien is it?
mortgage lien
involuntary liens
obtained through an action of law without the owner's consent. The property owner does not take any action to initiate the lien. *Real estate tax liens and judgment liens are examples.
EE
receives the action; employee (they don't employ), mortgagee receives the money from the lender
a private individual telling a private individual what cannot be done on that piece of real estate
restrictions
also called restrictive covenants
restrictions
A mortgage is an example of a:
specific, voluntary lien
a mortgage lien is a -
voluntary, specific lien
special assessments
Fees collected by the local city government for utilities, road maintenance and other services such as fire protection and street lighting; a affected homeowners MUST pay the special assessment *statutory *specific Special Assessments can be used for: 1. Gutters 2. Street lights 3. Curb improvements 4. Street paving 5. Sidewalks
Which of the statements below is an example of a mortgagor? 1. Michael, a buyer's agent, represented Jamesy as a client during the homebuying process. 2. Jamesy took out a loan in order to purchase her home. 3. Erica, a loan officer, approved Jamesy's loan. 4. Big Bank gave a loan to Jamesy so she could purchase her home.
Jamesy took out a loan in order to purchase her home.
general liens include:
Judgment liens (lis pendens) Estate and inheritance tax liens Deceased persons' debt IRS tax liens
lis pendens notice
Notice of future foreclosure; pending lawsuit --- you can save your property by transferring to your children, etc., but it must be done BEFORE the lawsuit begins.
What happens if a deceased person's cash reserves aren't sufficient to cover their debt?
Real and personal property will be liquidated.
lien priority
The order in which liens are paid off out of the proceeds of a foreclosure sale. Tax liens always have the highest priority. Liens are commonly prioritized in the same order in which they were recorded. Remember it this way: first in time is first in line. *Ad valorem taxes and special assessments will always be paid first. That's known as being in "first place."
federal tax liens
When a person does not pay Internal Revenue Service (IRS) taxes, such as the federal income tax. This is a general, involuntary lien that is held against all of the defaulting taxpayer's property. 1. The IRS will first assess the taxpayer's liability 2. then send a Notice and Demand for Payment to the taxpayer. *If the taxpayer does not respond within 10 days after receiving this notice, the IRS may then create a lien for the amount of the debt. The lien creates a claim on the taxpayer's real and personal property, including any property purchased after the lien is filed. Lien may be released if the taxpayer pays the debt.
subordination agreement EXAMPLE:
When would a subordination agreement come into play? Imagine homeowner Mike. He buys his home using a mortgage. That mortgage is in first position, as he has no tax liens and it was the first lien chronologically (remember, first in time is first in line). Mike then takes out a home equity loan to finish his basement. So far, so good: The second mortgage is second in time, and second in line. Then, Mike wants to refinance his primary loan. Refinancing would extinguish his existing loan and create a new loan. But that would put his primary mortgage in line behind the second mortgage. Most lenders would not be cool with that. So his primary lender would ask his home equity loan lender to sign a subordination agreement putting the refinanced primary loan first in line again, even though it was created after the home equity loan. If his home equity lender won't sign the agreement (which is totally within their rights), the primary lender may not be willing to let Mike refinance until he pays off his second loan.
Why are homes with liens on them hard to sell?
because the lien will be transferred with the home to the buyer
mortgagor
borrower (me)
writ of execution
can be issued by a court to force payment of monies owed from a judgment when a debtor does not pay. It gives court officers the right to confiscate and sell the debtor's property to satisfy the debt. *involuntary lien *attaches to the property until it's sold
*usually created by an agreement between two parties or out of necessity *could be obtained by prescription when the area has been used by the non-owner of the property for at least 10 years *require a property owner to grant another party the right to access their property while still retaining full legal title *when there is no other choice but to use someone else's land can end if there is not a need for it to exist any longer
easements
usually created by an agreement between two parties or out of necessity
easements
when there is no other choice but to use someone else's land
easements
OR
employER (employs people) trustOR (borrower) receives a loan from a bank in exchange for creating a mortgage
*a physical intrusion on someone else's property without direct permission *a fence that was not placed on the property line *a driveway that crosses the edge of someone else's property *an illegal use of another land owner's property *when one owner's property crosses the property boundaries of an adjacent property
encroachments
a fence that was not placed on the property line
encroachments
a physical intrusion on someone else's property without direct permission
encroachments
when one owner's property crosses the property boundaries of an adjacent property
encroachments
1. gives court officers the right to confiscate and sell the debtor's property to satisfy the debt 2. can be issued by a court to force payment of monies owed from a judgment when a debtor does not pay
execution liens
A specific lien is a claim against all property an individual owns.
false
If a property owner does not pay their income taxes, the IRS may put a ____ on their property.
federal tax lien
Consider an income tax (IRS) tax lien. Is this an example of a lien that is general or specific? Is it voluntary or involuntary?
general involuntary
mortgage payments
include principal payments (reduces the loan amount) and interest payment (interest due on the outstanding loan), plus an amount equal to 1/12th of their annual tax bill and 1/12th of the annual home insurance bill. Put into Escrow to include property tax fees.
a federal judgement lien is a -
involuntary, general lien
a mechanics lien is a -
involuntary, specific lien
subordination agreement
is a contract that gives a mortgage recorded at a later date priority over a previously recorded mortgage. It's separate from the sales contract, and it's used when the lien holder is unwilling to accept a lower position in the priority of liens. This written agreement changes the priority of multiple liens on a property. When buyers obtain a mortgage loan to purchase a property, lenders often require a highest-priority lien. (Highest priority liens are said to be "in first position.") The bank will almost always want to be in the first position. *A subordination agreement is used to demote an existing lien in priority, so that a new lien can be in first position. The existing lien-holder has to agree to the demotion.
attachment liens
is a general, involuntary lien and may attach to all of the owner's property except their homestead property.
mortgage
is a legal agreement between a creditor and borrower in which the creditor lends money with interest to the borrower for the purchase of property with the condition that the creditor takes ownership of the title if the borrower defaults in repayment of the loan. *a voluntary lien
general lien
is a lien for which the real estate AND personal property may be sold to satisfy the debt.
specific lien
is a lien that applies to a certain property only. Personal property is not affected.
senior lien/superior lien
is a lien that comes first in the priority of liens. If there's a tax lien involved, it will be the senior lien.
junior lien/inferior lien
is a lien that has another (senior) lien superseding it in priority. *If your lien is too junior, you might not get paid at all if the borrower defaults. This is the reason second and third mortgages often have higher interest rates: to hedge against the risk that if the borrower defaults, they will not be fully paid back. *Because of that, some lenders will insist that their lien gets to cut in line. This is done with a subordination agreement.
voluntary lien
is a lien that is created on purpose and with the agreement of the owner of the property in question. That means the property owner chose to initiate a lien that would not otherwise exist. *mortgage = the most popular voluntary lien
a lien
is the claim made by a creditor against real or personal property pledged by a debtor as collateral. Some give the lender the right to foreclose on a property if the borrower goes into default.
ad valorem taxes
latin for, "according to value." specific involuntary statutory (created by law) liens
mortgagee
lender (Bank of America)
*special assessments and state property taxes have the highest priority, regardless of when they were recorded *any claim against a property that affects its title or use have to be resolved when selling the property *use subordination agreements to change the priority *the priority is generally determined by the date when it was recorded in the county clerk's office
liens
use subordination agreements to change the priority
liens
tax liens are
liens placed on real property to secure unpaid taxes.
1. protects suppliers, contractors, architects, engineers, surveyors, and other parties whose labor or materials has improved the value of real property 2. parties must work under contract with the owner of a property or the owner's representative 3. created when a worker has not been paid for work done on a property
mechanics lien
College Credit Union has decided to give Melissa a loan. In exchange, they have a mortgage on Melissa's house. Which term best describes College Credit Union?
mortgagEE
1. when a person buys a home, the home itself becomes collateral for the loan, so the lender obtains it 2. specific because they only apply to the property that is secured by the debt and voluntary because owner voluntarily enters into the contract
mortgage lien
*a private individual telling a private individual what cannot be done on that piece of real estate *a limitation on the type or number of animals that could be kept *also called restrictive covenants *require specific standards for improvements, lot sizes, or architectural design *usually created by the developer of a subdivision
restrictions
put limitations on the use or maintenance of certain areas
restrictions
usually created by the developer of a subdivision
restrictions
Consider a property tax (ad valorem) tax lien. Is this an example of a lien that is general or specific? Is it voluntary or involuntary?
specific involuntary
bail bond liens
specific involuntary *enforced by a court officer or sheriff if the property owner does not appear in court *can be put up in the form of real estate in lieu of cash when a property owner is accused of a crime.
vendees lien
specific involuntary *protects the buyer is a document declaring a claim from a buyer that the seller has not transferred title to the buyer according to the agreement. If the owner sells the property using a "contract for deed", the buyer will make payments to the seller. The contract will state that the seller will give a deed to the buyer someday.
vendors lien
specific involuntary lien that is used when a buyer doesn't take out a loan, but also doesn't pay the full purchase price of the property. Until the buyer pays the seller all the money they owe them, the seller has a vendor's lien on the property. Essentially, the seller is lending the buyer money to buy the property, and the property itself is being used as collateral. It's also possible for a buyer to get a large loan from a mortgage company and a smaller loan from the seller. Unlike a mortgage lender, a seller with a this lien can't foreclose on the property. These liens are enforced by filing suit to have the property sold.
Consider a home mortgage. Is this an example of a lien that is general or specific? Is it voluntary or involuntary?
specific voluntary
municipal utility liens
specific involuntary if utility bills are not paid there can be a lien put on the property
What kind of lien is a bail bond lien?
specific and involuntary
file a mechanics lien in Georgia:
*In Georgia, contractors, subcontractors, material suppliers, architects, laborers, machinists, engineers, manufacturers of machinery, and renters of equipment can all file mechanic's liens. *Note that if you are required to be licensed for your trade and are not, you cannot file a lien. *If a Notice of Commencement was filed by the property owner when the project started, and the person filing the lien did not contract directly with the property owner, a preliminary notice is required to be sent to the property owner. Otherwise, no notice is required. *Liens must be filed within 90 days of completion of the project or delivery of materials. Mechanic's liens only attach to the property on which the work was done, and they last for a period of one year. *If the debt is not paid within the year, the person who filed the lien must enforce it by filing a foreclosure suit, or the lien will expire.
consequences of tax liens:
*if property owns fails to pay income taxes --- 1st - the taxing authority will send delinquency notices. 2nd - (if still unpaid) they will put a tax lien on the property 3rd - foreclose on the property.
How are liens terminated?
*liens stay with the property, unless they are cleared by the seller before closing. *A debtor can terminate liens in one of the following ways: 1. In the case of a general lien, which doesn't need to stay with that specific property, the seller may convince the lender to release the lien from the property and transfer it to some other acceptable property or collateral that the seller owns. 2. If the proceeds from the sale will cover the debt, those funds will be withheld at settlement to pay the lender. A record of satisfaction of the lien will be filed in the public records. 3. If the debt is larger than the proceeds of the sale, the seller has the option of settling the remaining debt by paying the balance at closing.
Taxes only apply to the amount of an inheritance that remains after certain expenses have been subtracted. These deductible expenses include:
1. The deceased person's debt 2. Funeral costs 3. State death tax (which perfectly combines the only two guarantees in life, doesn't it?) 4. Any charitable donations
In 2010, Gene took out a mortgage and bought his dream home. In 2012, he took out a home improvement loan and installed a really awesome swimming pool (and became very popular in the neighborhood). In 2014, he put a third lien on his home to replace a broken heat and air system. Late in 2014, Gene lost his job. He was out of money and defaulted on his loan payments. When the lender foreclosed in 2015, there was a $47,000 balance (including the cost of the foreclosure) to the first lender. There was still a $9,000 balance on the swimming pool loan and a $1,500 loan on the third lien for the heat and air system. Gene's property was sold on the courthouse steps for $52,500 cash. How will that money be distributed to his creditors?
1. The first mortgage lien will be paid in full for $47,000. But after paying off the mortgage, there is only $5,500 left from the sale. 2. The additional $5,500 will be paid to the pool loan (second lien) and since there is no more money, the third lien-holder will get nothing. It is easy to see that the lower the priority of lien, the bigger the risk. Because of that, you will find that the interest rate is often higher on the second and third liens to compensate for that risk.
which properties are exempt from attachments?
1. Tools used for a trade or business 🔨 2. Social security 🔒 3. Basic household appliances and furniture 🛁 4. School books 📚 5. Money owed to debtors for child support or injury 💰 6. Prescription health supports 💊 7. Basic wages 💵 8. Cemetery lots 🕯
ad valorem taxes liens VS irs tax liens
1. ad valorem - based on a percentage of the property value; a specific lien 2. based on unpaid taxes for the individual; a general lien
Governments levy two types of taxes
1. special assessments - improvement taxes 2. ad valorem taxes - based on the assessed value of the property *If the payments are not made on time, penalties will be added. Someone may even lose ownership of a property if they do not pay their taxes. The real estate could be taken by the county and sold at a tax sale.
A parcel of property is foreclosed on and sold by a court to satisfy all of the owner's outstanding debts. This debt includes a second mortgage lien recorded in June 2013. The first mortgage on the same property was recorded in May 2005. The property owner never paid a contractor for improvements performed in September 2008, for which a mechanic's lien took effect in October 2008. A special assessment was levied for curb improvement on the property in August 2017. What is the order these debts will be paid? Think about how the priority of liens would work here.
The order of payment from the proceeds of the sale is as follows: 1. The special assessment for the curb improvement, along with any outstanding general property taxes, is paid first (from 2017). 2. The first mortgage lien is then paid, because it was recorded earliest (2005). 3. Next, the contractor is paid to satisfy the mechanic's lien that took effect in 2008. 4. The lender for the second mortgage then receives payment (2013). 5. Finally, if there are any proceeds left over from the sale, the property owner receives the remainder.
What happens if the debt secured by the lien is for a larger amount than the proceeds of the property sale?
The seller has the option of settling the remaining debt by paying the balance at closing.
assessment
The way real estate property taxes work is that the county tax assessor will calculate the value of a property. This value is NOT necessarily the same as the market value of the property. Then each individual taxing authority will apply the tax rate that they decided upon to meet their financial needs in their budget. Usually, a consolidated bill will be sent to the property owner to pay. If there is more than one taxing entity (and there always is), the tax bill only has to be paid at one location.