Liens and their Releases
Liens and their Releases
When buying property, it's important to be aware of any liens that may be attached to it. A lien is a legal claim on a property, usually as a result of an unpaid debt or obligation. Liens can affect a home buyer's interest in a property and can cause financial and legal issues if not properly addressed prior to purchasing the property.
Liens can be placed on a property for a variety of reasons, such as unpaid property taxes, unpaid homeowner association dues, unpaid contractor fees, or even unpaid child support. When a lien is placed on a property, it becomes encumbered, meaning there is a right to, or interest in, land held by a person other than the fee owner, or a claim, lien, charge or liability attached to and binding real property. At the county level, there are three basic types of liens, voluntary, involuntary, and silent liens.
Voluntary liens are liens that an individual knowingly enters into. Mortgages are an example of a voluntary lien. For a mortgage, the creditor is the lender. To satisfy a mortgage the lender must sign a Mortgage Satisfaction, Discharge or Cancellation, as proof the mortgage has been satisfied. The document must be notarized and filed in the County Land Records as proof the lien is paid off. The mortgage holder has 30 days after the mortgage is paid off to have the Mortgage cancelled of record. For residential mortgages, if the mortgage holder does not have the mortgage cancelled of record, an attorney or title insurance agent who sent the funds to pay off the mortgage is able to discharge the mortgage themselves, by having an affidavit of payment sent to the county for recording. Involuntary liens are liens on a property that an individual may not know are filed but are often the result of not paying a bill. Examples of Involuntary liens are Association Liens, IRS liens, Restitution liens, and construction or mechanic’s liens.
Tax Sale Certificates: Pursuant to the Tax Sale Law, if a property owner fails to pay real estate taxes or other municipal debts, the municipality may hold a tax sale. The successful bidder at the sale will receive the Tax Sale Certificate (TSC), which is then recorded in the county land records. TSC’s may only be redeemed by the property owner, a holder of a prior TSC, the holder of a mortgage or an occupant of the land. The property owner may enter into an installment payment plan with the TSC holder but if the owner fails to make required payments, the TSC Holder may foreclose. Upon payment, the TSC can be cancelled or discharged (in a manor similar to the cancellation or discharge of a mortgage). If the TSC is privately held, the redemption will be made through the tax collector, who requests the original copy of the TSC for cancellation. If the original has been lost, the collector is empowered to execute and deliver a discharge (although many are reluctant to do so).
Mechanic’s Liens and Construction Liens are liens given by statute to persons furnishing labor or materials in connection with the construction, repair or alteration of a building. The Mechanics’ Lien Law only applies to projects commenced under building permits issued prior to April 22, 1994, therefore, today, they are not common. Construction Lien Law replaced the Mechanics’ Lien Law and therefore, affects all work for which building permits were issued on or after April 22, 1994. A Construction Lien Claim (CLC) is filed and indexed with the county clerk in a “Construction Lien Book” and “Construction Lien Index”. To remove a CLC of record, the owner may pay the claimant directly. Upon receipt of payment the claimant is required to file a “Certificate” of discharge with the county clerk. If the claimant has failed to do so and 13 months have elapsed, the owner may file a certificate of discharge, accompanied by an affidavit (given that the owner gave the claimant 90 days notice of their intention to file the discharge by affidavit). Additionally, the owner may obtain a bond in an amount equivalent to 110% of the claim amount and file the bond with the County Clerk, or deposit 110% of the claim amount with the clerk of the Superior Court. In either case, the clerk will cause the CLE to be discharged of record.
Association Liens are statutory liens filed for unpaid dues and assessments by Homeowner’s Associations, Condominium, or other Common Interest Community (CIC). The lien is effective upon recordation in the county land records. The association is permitted to file a new lien (or re-file an existing lien) on an annual basis to cover any additional dues which accrued and were unpaid after the filing of the initial lien.
Silent liens are liens that are not formally filed in the county, such as Inheritance Tax Liens. New Jersey Inheritance Tax (NJIT) is normally payable within eight months of the decedent’s death. Until it is paid, the NJIT constitutes a lien upon “all property owned by the decedent as of the date of his death” for a period of 15 years from death. Once 15 years have elapsed from the date of death, the NJIT lien expires, and the state may not attempt to collect the tax. If estate property is to be conveyed prior to the settlement of the NJIT obligation, an Inheritance Tax Waiver may be obtained from the Division of Taxation or escrow held. This waiver must be filed in the county and releases the named property from the lien of the NJIT.
Real Property generally should not be sold or transferred without satisfying open liens. This means that the seller must pay off any open liens and file the appropriate documents before transferring ownership to the buyer. A good title company will do extensive research on the property being sold to ensure that there are not open liens that may affect the buyer’s ownership of the property.