Real estate and liens go hand in hand. According to the Legal Information Institute, a lien is described as “a security interest or legal right acquired in one's property by a creditor” When it comes to commercial real estate, the use of liens is common practice and can significantly impact a business. Liens can be used to foreclose on a property, forcing the business or any tenants to vacate the property. The three basic types of liens are a consensual lien, statutory lien, and judgment lien. Within those categories, liens are given specific names based on the type of creditor. While all three types affect commercial real estate, Consensual liens and Statutory liens are the types of liens that affect commercial real estate the most. A judgment lien is put in place by a judge after default on one of the previous two liens.
There are two types of consensual liens; purchase-money security interest and non-purchase-money security interest. Purchase-Money Security Interest Lien. Best known to be put in place by a lender when a new property loan is received. At that time the buyer gives consent to the lien against the property the loan was used to purchase.Non-Purchase-Money Security Interest Lien. This lien is a result of someone borrowing money against a property. They are using the property as collateral but, not necessarily using the money for said property. An example of this would be a second mortgage.
A statutory lien is a lien related to local or federal law. Within the statutory lien category, the two specific named liens that affect commercial real estate are tax and mechanic’s liens.What is a Tax Lien? This is incurred when an owner of a property fails to pay their assessed taxes. Thus, prompting the court to give the government a security interest in the property. This can stem from any federal, state or local tax debt owed.What is a Mechanic’s Lien? These liens are not only for mechanic’s as the name would imply. They can be a construction lien put in place by a contractor who has not been paid for their services. This could also be a supplier’s lien given to a supplier who has not been paid for supplies/materials used. Architects, engineers, and land surveyors are also granted Mechanic’s Liens when they have not been paid for their services.
Property title searches are the way to find out if there is a lien on the property. You can have a title search company perform the property title search, you can do a title search online using a search product website, you can do a title search online at the Register of Deeds for the county the property is located. While it is legal to do your own title search, experts do not recommend this due to the complexities of the search.
To avoid a judgment, the lien must be removed. To begin you should first make sure you do in fact owe the debt the lien represents. If you do not believe you owe the debt an attorney consult is suggested. If you do owe the debt, you must first pay the creditor in full in order to have the lien removed. Once the creditor has been paid in full you must have a lien release completed and signed by the creditor in front of a notary public. (These can be found online, make sure it is not a partial lien release form). It is important that ALL pertinent information be filled in, including your name, the lien holder’s (creditor’s) name, amount of debt paid and proof of payment, and a description and address of the property. Now that you have the notarized copy of the lien release you need to file it with the county recorder’s office, remembering to keep a copy for yourself. There is a fee for recording the document.