The most common type of lien is the mortgage. A mortgage is basically a legal document that states you owe a certain amount on a property, and you can only ever truly call it yours until that has paid off. The lender naturally has an interest in allowing this lien to be in place, as you pay them money each and every month until the full balance has been cleared. Because the lien is in place, the lender can also take legal action against you should you default on your mortgage payment arrangements. Foreclosure is the most common type of legal action. Although the mortgage is the most common, and socially acceptable, lien, there are other liens as well. One of those is the mechanic’s lien.
What Is a Mechanic’s Lien and How Does it Affect You?
A mortgage can, theoretically, encumber your home, as you never truly own it. Yet, most of us do not feel this as being any kind of hindrance. This is where a mortgage mainly differs from another type of lien. If, for example, you have hired a builder to do work on your home, you may want to ask them to settle your balance through monthly payments as well. This would mean they would also need to place a lien on your property. Again, this is something you will not notice until you default on your payments.
Then, there is the mechanics lien. This is placed on your property by anybody who has done work on the property, but hasn’t been paid yet. The lien can cover their materials, their cost of labor or anything else. This lien can only be placed on a property on which the work has actually be done. As such, a mechanic’s lien can also be placed on a vehicle if the mechanic worked on your car.
Once the lien is in place, however, you will not be able to sell your property until payment has been made. In some cases, particularly if a payment arrangement has been made but you are not sticking to that arrangement, foreclosure procedures may start against you, even if the lien is not held by the mortgage lender. Essentially, they will do this in order to force you to make payments for services rendered.
A mechanic’s lien significantly impacts your ownership of a property. If you have any equity in your home, the value of the lien will be removed from this equity as well. This means that, if you were to apply for an equity release scheme or a secured home improvement loan, you may be denied it, as the equity has been reduced by the lien.
Although in the vast majority of cases, a lien is placed on a property in agreement with the property owner, some liens have to be forcefully put in place after nonpayment of certain goods or services. This is a very serious problem that must be resolved properly, as it essentially means that somebody else has ownership over at least a piece of the property.