Filing a lien entails establishing a legal claim against an asset, often a property or a vehicle, which is commonly used as collateral for payment of a debt. With a lien, a lender has the security of knowing that if the borrower doesn’t follow through on satisfying a debt, the lender will have a legal claim to an asset.
Liens can be filed by an individual person or by an organization like a bank. The party who files the lien is called the lienholder. Liens can be filed by a creditor, or they can be ordered through legal action.
Steps to File a Lien
Filing a lien is a serious legal move and should only be done after exhausting all other options to be paid. It is first recommended that you reach out to the party who owes money to attempt to set up a payment plan or another way to collect payment. Hiring a debt collection agency is another way to avoid the formal legal process of a lien.
If all attempts to be paid fail and filing a lien against the other party is the final option, you can follow these steps to file a lien:
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Secure a Preliminary Notice. Depending on your state laws, you may be required to notify the debtor that a lien will be filed if nonpayment persists. Some states have a form that must be filed to give notice that can usually be obtained from the clerk of courts. Other states may have time restraints to give notice. Many states require that preliminary notice of a lien must be given within 10 to 20 days of the date work began. It is common to inform parties from the outset that a lien will be filed in the event of non-payment. Due to the variations in state laws, if you are unsure about whether you need to file a notice or how many days you must notify the debtor, you should consult with an experienced lien lawyer to guide you through the lien filing process.
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Review Deadlines. Each state imposes a deadline in which you must adhere to if you decide to file a lien. In some states, like Louisiana, you only have 60 days from the date the work was completed to file a lien. Other states provide debtors up to a year to file a lien which provides ample time to exhaust other collection methods.
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Research the Property. If you plan on filing a lien on a property, you will have to complete some research prior to filing. You will need to complete a title search to verify the actual owner and acquire a legal description of the property from the deed. This process can cost a few hundred dollars and it is important to note that if there are other liens currently on the property, they will take priority over your lien which could prevent you from collecting on the debt.
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Draft a Lien. Once you have decided to file a lien and have completed the research necessary, it is time to draft the lien document. A lien is usually a short one-page document that includes the following information:
- Creditor details
- Debtor details
- Property details
Many states provide forms that can easily be filled out, but some states require additional documents like affidavits to be filed with the lien. To ensure you have all the documents necessary to file your lien in your state and that your lien document is complete, consult with a knowledgeable attorney first.
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File the Lien. Depending on your state, you will need to file the lien with either the property recorder’s office or the clerk of court. If you are filing a lien on a property, it must be filed in the county in which the property is located. Most jurisdictions charge a filing fee between $25 and $50.
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Notify All Parties. After filing the lien, you are often required to notify all parties included in the lien like the property owner and any other lien holders. Consult with a local lien lawyer if you are unsure who you are required to notify.
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Enforce the Lien. After the lien is filed, if the debt isn’t paid, you can enforce the lien by filing a foreclosure lawsuit against the property owner. This will force the property to be sold and the proceeds will go towards repayment of the debt. Each state has laws regarding the amount of time you have to file a foreclosure lawsuit, but most states allow a year. If you don’t file a lawsuit before the end of the enforcement period, your lien is expired and no longer has value.
Filing a foreclosure lawsuit can be a very complicated and time-sensitive process. It is recommended that you consult with an attorney to ensure that all deadlines are met, the lawsuit is filed properly, and you are compensated for the debt owed.
Who Can File a Lien?
Generally, anyone who is owed money can file a lien against the debtor’s property to collect a debt. Liens are most commonly used by contractors who aren’t paid for their services, but anyone who obtains a legal judgment against another party for money owed is entitled to file a lien.
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Who Can You File a Lien Against?
Liens are used across all industries for repayment of debts and can be filed against a variety of entities and assets including businesses, properties, and vehicles.
- Business: If a business owes you money and refuses to pay its debt, you can file a lien on the assets of the business. Before you can file a lien against a business, you must first obtain a judgment against the business in court. To get a judgment in court, you will have to file a claim in the proper court and provide evidence to prove that the business owes you money. If a judgment is entered in your favor, you can then file a lien against the business’s assets. The lien should be recorded with the clerk of courts. If the lien is against a bank account, a copy of the documentation should be sent to the bank or broker that holds the account. For liens on vehicles, you can send the documentation to the local DMV. Once the lien is in place, you have the legal right to seize and sell the business assets to satisfy your debt.
- Property: A lien against a property, often called a mechanics lien, construction lien, or labor lien, is filed when a contractor performs work on a property and then is not paid. Those who file liens against properties often include roofers, carpenters, plumbers, and other service providers. The lien must be filed in the county in which the work took place. Most counties require a copy of the unpaid bill to be filed along with the lien. After the lien is filed and answered, a court date will be set to determine if the contractor’s lien should be granted. If the court rules in favor of the contractor, the lien is active, and the contractor has the right to take possession of the property if the debt isn’t repaid in a specific amount of time.
- Vehicle: Similar to property, liens can also be filed against vehicles like cars, boats, or other recreational vehicles. To file a lien against a vehicle, you will need a judgment in your favor allowing you to file a lien on a debtor’s property. After obtaining a judgment, it is best to use a local sheriff's department to seize the vehicle. Often, you will have to check whether there is already a lien on the vehicle and any other lienholders must be notified before the vehicle goes to auction.
Types of Liens
There are various types of liens that are used to secure different types of assets. The type of lien used will depend on the asset that is being used to satisfy an obligation. Some common examples of liens include:
- Mortgage: Many people may not realize that a mortgage or a home loan is a type of lien. When you borrow money from a lender to purchase a home, the property is the collateral in the event you do not repay the loan. In addition to paying a monthly payment to satisfy the loan, lenders may also include other stipulations that borrowers must fulfill to stay in possession of the property. Common stipulations include maintaining insurance on the property and using the property as a primary residence for a set number of years.
- Auto Loan: Similar to a mortgage, an auto loan is also a type of lien. A lender will hold the title of the vehicle while the borrower makes payments. Once the loan is satisfied, the lender will transfer the title to the new owner. If the borrower fails to make the monthly payment, the car will be repossessed.
- Judgment Lien: An individual or a business can be a creditor if they win a lawsuit against another party in what is called a judgment lien. If the amount of money awarded in the lawsuit cannot be collected, the creditor can put a lien against the losing party’s property.
- Mechanic or Construction Lien: Mechanics liens and construction liens are commonly used by contractors. If a party does not pay the contractor for the work performed, the contractor can file a lien against the customer to ensure payment.
- Tax Lien: Your local government or the IRS may collect unpaid taxes with liens. Taxing authorities may attach liens to both current and future assets. Tax authorities can also collect from bank accounts before other creditors can. In fact, the IRS usually has the right to collect before your other lenders. Bankruptcy doesn't always discharge unpaid taxes either.
Final Thoughts on How to File a Lien
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