Unit 15: Real Estate Taxes and Other Liens

tax lien

A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens.

tax sale

A court-ordered sale of real property to raise money to cover delinquent taxes.

writ of attachment

A document ordered by the court to have a sheriff enter a leased property to give possession back to the owner.

assessment equalization factor

A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value. An equalization factor may be applied to raise or lower assessments in a particular district or county.

mortgage lien

A lien or charge on the property of a mortgagor that secures the underlying debt obligation.

ad valorem tax

A tax levied according to value, generally used to refer to real estate tax. Also called the general tax.

special assessment

A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.

estate tax

Federal tax on a decedent's real and personal property.

inheritance tax

State-imposed taxes on a decedent's real and personal property.

The general real estate tax is an ad valorem tax.

The answer is true.

specific lien

A lien affecting or attaching only to a certain, identified parcel of land or piece of property.

Internal Revenue Service Tax Lien

A lien charged by the Internal Revenue Service for nonpayment of income taxes.

mill

One-tenth of one cent. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would indicate a tax of $0.052 for each dollar of assessed valuation of a property.

An equitable lien arises out of common law.

The answer is true.

The current market value of a vacant lot is $35,000. For tax purposes, it is assessed at 40% of market value. The tax rate is $4 per $100 of assessed value. What is the amount of the tax due?

The answer is $560. $35,000 (market value) × 40% (0.40) = $14,000 (assessed value); $14,000 ÷ 100 = 140; and 140 × $4 tax rate = $560 tax due.

What is another name for a federal tax lien?

The answer is IRS tax lien. This type of lien results from a person's failure to pay any portion of federal taxes, such as income and withholding taxes.

If someone fails to pay part of their federal income taxes, what type of lien results?

The answer is IRS tax lien. This type of lien, also known as a federal tax lien, results from a person's failure to pay any portion of federal taxes, such as income and withholding taxes.

A bail bond lien against the real estate of a property owner who is charged with a crime that will result in a trial is

The answer is a specific, statutory, voluntary lien. The execution and recording of the bail bond creates a specific, statutory, voluntary lien against the owner's real estate. If the accused fails to appear in court, the lien may be enforced by the sheriff or another court officer.

Tax liens usually are given the lowest priority over all other liens against a property.

The answer is false.

An involuntary lien is created by law and is statutory (not equitable).

The answer is false. An involuntary lien is created by law and may be either statutory or equitable.

The priority of liens means

The answer is first to record, first in right. As specified by the state, the priority of liens refers to the order in which claims against the property will be satisfied if the property is sold by the debtor. Typically, the priority of payment is established by the date the liens are placed in the public record of the county in which the property is located.

A judgment creates a lien on both real and personal property owned by a debtor and is

The answer is general, involuntary, and equitable. The decree issued by a court is a general, involuntary, equitable lien on both real and personal property owned by the debtor. A judgment will expire after a number of years, but some states allow a judgment to be renewed indefinitely by the judgment creditor.

Which lien affects all real and personal property of a debtor?

The answer is general. A general lien attaches to all of a debtor's property as opposed to a specific lien, which affects only a specific property.

What type of lien should a purchaser of a property that has recently been repaired be MOST concerned about?

The answer is mechanic's lien. A prospective purchaser of a property that has recently been constructed, altered, or repaired should be cautious about possible unrecorded mechanics' liens. In most states, a mechanic's lien takes priority from the time it attaches, even though a claimant's notice of lien will not be filed in the public record until sometime later.

Which of the following is a voluntary, specific lien?

The answer is mortgage lien. A mortgage lien is created voluntarily by the borrower. The borrower names specific property in the mortgage agreement that serves as security for the lender.

Which of the following is NOT one of the ways a lien is created?

The answer is rescission. There are four ways to create a lien: voluntary, involuntary, statutory, and equitable.

A town wants to construct new concrete curbs in a residential neighborhood. How will the town most likely raise the money necessary for the improvement?

The answer is special assessment. The town will most likely levy a special assessment against the benefiting properties to pay for the new concrete curbs.

A local attorney was appointed guardian of a property owner with no known relatives, who required care in a nursing home. The property owner has no will or any money available for expenses and hasn't paid any property taxes in the past four years. What would the state file to eventually collect the unpaid back taxes?

The answer is tax lien. The tax lien would then take first priority and would be paid first from the proceeds of a court-ordered sale of the property.

All of the following are true statements about real estate tax liens EXCEPT

The answer is tax liens have less priority than mortgage liens after a foreclosure. An outstanding tax lien would be paid first from the proceeds of a court-ordered sale of a property.

Real estate taxes that are delinquent for the period specified in state law can be collected through

The answer is tax sale of the property. The sale price must be at least the amount of the tax owed and any penalties.

A property owner's real estate tax bill is computed by applying the tax rate to

The answer is the assessed valuation of the property. The state may base that assessment initially on the purchase price of the property, but with an allowable increase every year to account for inflation or specific assessments. Any liens on the property have no effect on its assessed value.

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 be relieved from possible mechanic's liens.

The answer is true.

When any suit that affects title to real estate is filed, a special notice, called a lis pendens, can be recorded.

The answer is true.

Is it possible for the present owner of the house to reclaim it, even if there is a tax sale?

The answer is yes, depending on state law. If the owner's state provides a statutory right of redemption following a tax sale, the present owner can reclaim the property by paying the amount collected at the tax sale plus interest and charges (including any taxes levied since the sale).

Can there be a property tax lien if it is not filed in the public record?

The answer is yes. A property tax lien can be effective and take priority over other liens, even if it is not made part of the public record.

Can property be sold for nonpayment of taxes, even if the current owner was not aware of the debt against the property?

The answer is yes. The property will be sold if the back taxes plus late fees are not paid.

judgment

The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.

lien

A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.

mechanic's lien

A statutory lien created in favor of contractors, laborers, material suppliers, and others who have performed work or furnished materials in the erection or repair of a building.

general real estate tax

A tax that is made up of the taxes levied on the real estate by government agencies and municipalities.

subordination agreement

A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances.

equitable lien

A lien created by common law, (through the courts)

statutory lien

A lien imposed on property by statute—a tax lien, for example—in contrast to an equitable lien, which arises out of common law.

voluntary lien

A lien placed on property with the knowledge and consent of the property owner.

involuntary lien

A lien placed on property without the consent of the property owner.

vendor's lien

A lien that belongs to a vendor for the unpaid purchase price of land, where the vendor has not taken any other lien or security beyond the personal obligation of the purchaser.

general lien

The right of a creditor to have all of a debtor's property—both real and personal—sold to satisfy a debt.

statutory right of redemption

The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.

equitable right of redemption

The right of a defaulted property owner to recover the property before its sale by paying the appropriate fees and charges.