What is a Lien? Understanding the Basics for Homeowners

Buying a home is one of the biggest financial steps you can take, and with it comes a range of new terms you haven’t encountered before. One of those terms is lien—a concept that can be confusing for new property owners but is very important to understand.

Liens are part of the legal and financial framework that helps lenders, contractors, and even governments ensure debts are repaid. While they are a normal part of many home loans, they can also create roadblocks if you’re not aware of them.

Keep reading to learn what liens are, how they work, the different types you may encounter, and what “second liens” mean for your property.

What Does Lien Mean?

A lien is a legal claim placed on a property by a creditor to secure repayment of a debt. In other words, if you owe money, a lien gives the lender or creditor the right to take action against the property if the debt isn’t paid.

For homeowners, this often comes into play with mortgages. When you borrow money to buy a house, the bank records a lien on your property. This means that if you don’t meet the terms of your mortgage—such as making monthly payments—the lender has a legal pathway to foreclose and recover what is owed.

Importantly, liens are usually part of the public record, meaning other lenders or interested parties can see that a property already has a claim against it. That’s why liens can also affect your ability to sell or refinance your mortgage until they are cleared.

Common Sources of Liens on Property

Liens can come from many directions, and not all of them are related to your mortgage. Here are some of the most common types of liens that can affect homeowners:

1. Mortgage Liens

When you take out a home loan, your mortgage lender becomes a lienholder. The lien ensures the loan is secured by your house until the debt is fully paid off. This is the most common and expected type of lien for homeowners.

2. Mechanic’s or Construction Liens

If contractors or subcontractors work on your property and don’t receive payment (even if you have paid the general contractor), they may file a mechanic’s lien. This guarantees they have a legal claim to compensation for their work completed.

3. Judgment Liens

If a court rules that you owe money after a lawsuit, the winning party can place a lien on your property. This lien ensures they eventually get paid, even if you can’t pay the full amount immediately.

4. Tax Liens

Local governments and the IRS can file tax liens when property or income taxes aren’t paid. These liens are particularly serious because taxing authorities often take priority over other creditors.

What are Second Liens?

When most people think about liens, they think of the primary mortgage lien on their home. But it’s also possible to have a second lien.

A second lien is an additional claim on your property, usually tied to a second mortgage or a home equity loan. Because the primary mortgage lender has first rights to repayment, the second lienholder is next in line.

Here’s why that matters:

• For Homeowners: A second lien can be a useful tool if you want to tap into your home’s equity for renovations, debt consolidation, or other expenses.
• For Lenders: Second liens are riskier since they are repaid only after the first mortgage in the event of foreclosure. That’s why second-lien loans sometimes come with higher interest rates.

You can also explore our HELOC Calculator or Credit Line & Loan Payment Calculator to estimate how a second lien loan could fit into your budget.

How Liens Can Affect You as a Homeowner

Liens don’t just sit quietly in the background—they have real effects on your financial life. For example:

• You generally can’t sell or refinance your home until outstanding liens are resolved.
• Certain liens may reduce the amount of equity you are able to borrow against.
• Disputes over liens can delay or derail property transactions.

For many homeowners, the most common lien (your mortgage) isn’t an issue as long as you keep up with payments. Problems usually arise with unexpected liens, such as unpaid taxes or contractor claims.

Curious how this could affect future financing? Our Home Mortgage Calculator can help you see how different loan amounts and interest rates impact your monthly payment.

How Liens are Removed

If you discover a lien on your property—or if you’re ready to sell and need to resolve one—there are several ways it can be removed:

1. Pay the Debt

The most straightforward option is to pay the debt in full. Once payment is made, the creditor releases the lien. This often happens automatically during a home sale when debts are settled at closing.

2. Negotiate a Settlement

If you can’t pay the full amount, creditors may accept a negotiated settlement. This clears the lien while allowing them to recoup at least part of what is owed.

3. Correct an Error

Sometimes liens exist due to paperwork mistakes or outdated records. For instance, a loan may have been paid off years ago, but the lien release wasn’t properly recorded. In these cases, working with the lienholder (or the county recorder’s office) can fix the issue.

4. Legal Action or Expiration

If a lien is disputed or appears invalid, legal action may be necessary to remove it. In some jurisdictions, liens also expire after a set number of years, though this depends on state law.

Why it’s Important to Understand Liens as a Homeowner

Knowing the lien definition helps you avoid surprises during major financial decisions, like selling your home or applying for a new loan. For new homeowners, it’s important to understand that liens aren’t always a problem—they are a standard part of mortgage financing. However, they can become obstacles if unpaid debts or disputes arise.

If you’re considering a second mortgage, refinancing, or tackling home improvements, knowing how liens work will help you make informed choices.

Mortgage Lending at Academy Bank

At Academy Bank, we know that navigating homeownership can be complicated—especially when it comes to terms like liens, second mortgages, or refinancing. Our team is here to answer your questions and guide you through your options.

Whether you are purchasing your first home or planning a renovation, understanding how liens work is an important part of protecting your financial future.

Learn more about your mortgage options, liens, and how Academy Bank can support your goals.

Mortgage Loan Experts