Chapter 10 - Real Estate Taxes and Liens

A Mil

A Mil is 1/1000 of a dollar, or $0.001.

Lien

A charge or claim against a person's property made to enforce the payment of money.

Writ of Attachment

A court order against the property of another person that directs the sheriff or other officer of the court to seize or take control of a property. Most arise for payment of an unsecured debt.

Judgement

A decree issued by a court. Usually, it is a general, involuntary, equitable lien on both real estate and personal property owned by the debtor.

IRS Tax Lien

A federal tax lien results from a person's failure to pay any portion of federal taxes, such as income and withholding taxes. Usually, general, statutory, involuntary lien on all real and personal property held by the delinquent taxpayer.

Vendors' Lien

A lien belonging to a vendor (or seller of a property) for the unpaid purchase price of the property, where the vendor or the seller has not taken any other lien or security, such as a mortgage, beyond the personal obligation of the purchaser. In real estate, they are uncommon and arise out of the use of owner financing to sell property.

Effects of Liens on Title

A lien might reduce the value of real estate because few buyers will take on the risk of a property that has a lien on it. Once in place, a lien runs with the land and will bind all successive owners until the lien is paid and cleared.

Mechanic's Lien

A specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve real property.

General Real Estate Tax

Ad valorem (according to value) - based on the value of the property being taxed and are specific, involuntary statutory liens.

General Lien

Affect all property, both real and personal, of a debtor. This includes judgments, estate and inheritance taxes, decedent's debts, corporate franchise taxes, and IRS taxes.

Specific Liens

Are secured by specific property and affect only that particular property. Includes vendors' liens, mechanics' liens, mortgage liens, real estate tax liens, and liens for special assessments and utilities.

Equitable Lien

Arises out of common law. A court-ordered judgment that requires a debtor to pay the balance on a delinquent charge account.

Lien on Real Estate

Attaches to real property at the moment it is filed and recorded.

Statutory Lien

Created by statute. A real estate tax lien, for example, is created by statute without any action by the property owner.

Voluntary Lien

Created intentionally by the property owner's actions, such as when someone takes out a mortgage loan.

Equitable Right of Redemption

Delinquent taxpayers can redeem the property any time before the tax sale. The taxpayer exercises this by paying the delinquent taxes plus interest and charges (any court costs or attorney's fees).

Lien on Personal Property

Does not attach to a personal property until the personal property is seized.

Judgment Lien Priority

Established by one of or a combination of the following: Date the judgment was entered by the court; date the judgment was filed in the recorder's office; or date a writ of execution was issued.

Estate Taxes (Inheritance Taxes)

General, statutory, involuntary liens that encumber a deceased person's real and personal property.

Assessed Value

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

Certificate of Sale

Given to the highest bidder when that bidder pays the delinquent tax amount in cash. This gives the holder the right to take possession of the property.

Tax Deed

If the property is not redeemed within the statutory period, the certificate holder can apply for this (AKA: Sherif's Deed).

Involuntary Lien

Not a matter of choice; it is created by law and may be either statutory or equitable.

Exceptions to Priority of Liens

Outstanding real estate taxes and special assessments generally take priority over all other liens and are paid from the proceeds of a court-ordered sale first.

Assessment

Real Estate is valued for tax purposes by county or township assessors or appraisers. Official valuation process.

Tax Sale

Real estate taxes that have remained delinquent for the statutory period can be collected this way.

Priority of Liens

Refers to the order in which claims against the property will be satisfied. In general, the rule for priority of the liens is first to record, first in right (priority). Typically, the priority of payment is from the date the liens are recorded in the public records of the county in which the property is located.

Statutory Right of Redemption

Some states grant a period of redemption after the tax sale. In this case, the defaulted owner (or the defaulted owner's creditors) may redeem the property by paying the amount collected at the tax sale plus interest and charges (including any taxes levied since the sale).

Mortgage Lien

Sometimes called a Deed of Trust Lien, is a voluntary, equitable, specific lien on real estate given to a lender by a borrower as security for a real estate loan.

Special Assessments

Taxes charged on real estate to fund public improvements to the property. Property owners in the improvement area are required to pay for the improvements because their properties benefit directly from them.

Redemption

The bidding at a tax sale is based on the interest rate the defaulted taxpayer would have to pay to redeem the property; that is, the person who bids the lowest redemption rate (the one most beneficial for the taxpayer) becomes the successful bidder.

Tax Rate

The process of arriving at a real estate tax rate begins with the adoption of a budget by each taxing district.

Attachments

To prevent a debtor from conveying title to such previously unsecured real estate while a court suit is being decided, a creditor may seek a writ of attachment.

Real Estate Taxes

Two types: General real estate taxes and special assessment taxes or improvement taxes. Levied against specific parcels of property and automatically become liens on those properties.

Equalization Factor

Used to achieve uniformity in situations necessary to correct inequalities in statewide tax assessments. It may be applied to raise or lower assessments in a particular district or county.

Types of Liens

VISE (Voluntary, Involuntary, Statutory, Equitable)

Lis Pendens

When any suit that affects title to real estate is filed, a special notice is recorded. (Litigation pending)

Money Judgment

When the decree establishes the amount a debtor owes and provides for money to be awarded.

Satisfaction of Judgment

When the property is sold to satisfy a debt, the debtor should demand this legal document.

Collateral

Whenever someone borrows money, the lender generally requires security, or something of value that the borrower promises to give the lender if the borrower fails to repay the debt.

Subordination Agreements

Written agreement between lienholders to change the priority of mortgage, judgment and other liens. The holder of a superior or prior lien agrees to permit a junior lienholder's interest to move ahead of the superior or prior lien.