Real Estate Unit 13

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lien

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is a charge or claim against a person's property made to enforce the payment of money.

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Notes

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Liens are not limited to security for borrowed money. Liens can be enforced against property by a government agency for payment of property tax owed by the owner. A lien also can be used to force the payment of an assessment or other special charge.

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Types of Lein

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1. Voluntary lien

2. Involuntary lien

3. Statutory lien

4. Tax lien

5. Equitable lien

6. General leins

7. Specific leins

8. Vendors lein

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voluntary lien

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is created intentionally by the property owner's action, such as when someone takes out a mortgage loan.

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involuntary lien

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A lien placed on property without the consent of the property owner.

is not a matter of choice; it is created by law and may be either statutory or equitable

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Statutory lien

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A lien imposed on property by statute(law)—a tax lien

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Tax lien

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A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens.

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equitable lien

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arises out of common law

Example:

A court-ordered judgment that requires a debtor to pay the balance on a delinquent charge account, and which can be filed in the county where the debtor owns property, would create an involuntary, equitable lien on the debtor's real estate.

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General lien

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The right of a creditor to have all of a debtor’s property—both real and personal—sold to satisfy a debt.

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Notes

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A lien attaches to real property at the moment it is filed and recorded. In contrast, a lien does not attach to personal property until the personal property is seized.

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Specific lien

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A lien affecting or attaching only to a certain, identified parcel of land or piece of property.

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Vendors lien

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A lien that belongs to a vendor for the unpaid purchase price of land, where the vendor has not taken any other lien or security beyond the personal obligation of the purchaser.

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General liens include

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judgments, estate and inheritance taxes, decedent's debts, corporate franchise taxes, and Internal Revenue Service taxes.

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5

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Specific liens include

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vendors' liens, mechanics' liens, mortgage liens, real estate tax liens, and liens for special assessments and utilities

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Notes

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a lien runs with the land and will bind all successive owners until the lien is paid or settled and title is cleared by the filing of a release of lien by the lienholder.

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Junior lien

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An obligation, such as a second mortgage, that is subordinate in right or lien priority to an existing lien on the same property.

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Subordination agreements

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The holder of a superior lien agrees to permit a later lienholder’s interest to take precedence

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Release of lien

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Filed when lien is paid off

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Priority of liens

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First to record first in right

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There are two types of real estate taxes:

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1. General real estate taxes

2. Special assessments or improvement taxes

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general real estate tax is an ad valorem tax.

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Is made up of the taxes levied on the real estate by government agencies and municipalities.

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Property taxes pay for a wide range of government services and programs, including those of

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states;counties;cities, towns, boroughs, and villages;school districts (local elementary and high schools, publicly funded junior colleges, and community colleges);drainage districts;hospital districts;water districts;sanitary districts;transportation districts; andparks, forest preserves, and recreation districts.

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Exemptions From General Taxes

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cities,various municipal organizations (such as schools, parks, and playgrounds),state and federal governments,religious and charitable organizations,hospitals, andeducational institutions.

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Assessment

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Real property valuation process

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Assessment of equalization factor

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Used to achieve conformity in tax assessments

A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments.

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tax levy

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Is the formal action taken to impose the tax, usually by a vote of the taxing district's governing body.

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Who is the tax rate for each taxing body determined by

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State law or is computed separately

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Mill

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Is 1/1000 of a dollar. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would indicate a tax of $0.052 for each dollar of assessed valuation of a property.

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The steps to Imposing Property Taxes

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1. A budget is adopted by each taxing district for the upcoming year

2. The funds need are appropriated by ordinance

3. A tax levy is agreed to by a vote of the taxing districts governing body

4. Each property's owner tax bill is computed by applying the tax rate to the assessed value of the property

5. Tax Bill's are delivered to the property owner, indicating the due dates for payments

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Tax Sale

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A court-ordered sale of real property to raise money to cover delinquent taxes.

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Statutory right of redemption

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The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.

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Equitable right of redemption

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Legal process that allows a defaulted borrower, before a foreclosure sale, to redeem the property by paying off the entire loan balance, including any interest, costs, and fees.

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Special assessments

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A tax or levy imposed against specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.

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LID local improvement district

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A group of property owners working together to fund needed capital improvements

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mortgage lien

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is a voluntary lien on real estate given to a lender by a borrower as security for a real estate loan.

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mechanic's lien

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Is a specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve real property.

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When can a mechanic lien be established

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the date the construction began or materials were first furnished;

the date the work was completed;

the date the individual subcontractor's work was either commenced or completed;

the date the contract was signed or work was ordered; or

the date a notice of the lien was recorded, filed, posted, or served.

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Judgement

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Is a decree issued by the court. It is a general, involuntary, equitable lien on both real and personal property owned by the debtor.

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money judgment

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Establishes the amount a debtor owes and provides for money to be awarded

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Notes

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Judgments expire after a number of years but, in some states, can be renewed indefinitely by the judgment creditor.

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To enforce a judgment, the creditor must obtain a

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writ of execution from the court.

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writ of execution

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directs the sheriff to seize and sell as much of the debtor's property as is necessary to pay both the debt and the expenses of the sale.

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Notes

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judgment does not become a lien against the personal property of a debtor until the creditor orders the sheriff to assess the property and the charge is actually made.

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A judgment lien's priority is established by one or a combination of the following (as provided by state law):

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Date the judgment was entered by the court

Date the judgment was filed in the recorder's office

Date a writ of execution was issued

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satisfaction of judgment

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When real property is sold to satisfy a debt, the debtor should demand a legal document

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lis pendens

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is not itself a lien, but rather notice of a possible future lien.

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Writ of attachment

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A document ordered by the court to have a sheriff enter a leased property to give possession back to the owner.

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Federal estate taxes and state inheritance taxes(as well as the debts of decedents)

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are general, statutory, involuntary liens that encumber a deceased person's real and personal property.

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Notes

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Municipalities often have the right to impose a specific, equitable, involuntary lien on the property of an owner who refuses to pay bills for municipal utility services.

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Bail bond lien

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A real estate owner who is charged with a crime that will result in a trial may post bail in the form of real estate rather than cash.

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Corporate Franchise tax lien

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State governments generally levy a corporation franchise tax on corporations as a condition of allowing them to do business in the state. Such a tax is a general, statutory, involuntary lien on all real and personal property owned by the corporation.

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A federal tax lien, or Internal Revenue Service (IRS) tax lien,

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results from a person's failure to pay any portion of federal taxes, such as income and withholding taxes.

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The process of money judgments

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1. The creditor obtains judgement through the court against the debtor

2. If the debtor does not voluntarily pay, the creditor then obtains a writ of execution from the court

3. The creditor records a lien against the real property of the debtor located in the county in which the judgement is granted

4. If the real property is sold to satisfy the debt the debtor obtains a satisfaction of judgment

5. If a deed of trust is used as a security instrument a deed of reconveyance must be filed