Tax Liens 101
What is a lien? No, it is not something you do when you are tired. By definition, a lien is a right to keep possession of property belonging to another person until a debt owed by that person is discharged. There are four main types of liens that everyone should be aware of:
- Code Enforcement Lien
- Contractor’s Lien
- Governmental Lien (IRS lien)
- Bankruptcy Lien
Each of these are different but can play key parts in real estate. A code enforcement lien is usually placed on properties that that are deemed unsafe for the owners and the public. Some causes of this include a faulty foundation, bad wiring, or even defective plumbing or other structural issues. If a home can hurt someone, a code enforcement lien may be placed on it.
A contractor’s lien, otherwise known as a mechanic’s lien, is placed on a property that has had work done on it that has not been fully paid for. For example, if you have your basement finished, but stop paying your contractor he can place a lien on your property.
A governmental lien, in my opinion the scariest of all, happens to those who try to take on the government by not paying their taxes. If you stop paying taxes, the IRS can place a lien on your house.
Finally, there is a bankruptcy lien. These are exactly what the name implies. When one goes into bankruptcy, a lien can be put on their home. Why does all of this matter? When you go to sell your home, prospective buyers will do a title search to look for liens. No one wants to purchase a property that in essence belongs to someone else. Liens are no good for anyone, my advice: avoid them!
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