Lien

Key Takeaways

• A lien is a financial encumbrance: every lien is an encumbrance, but many encumbrances, such as easements and deed restrictions, are not liens.
• A voluntary lien is created by the owner's own agreement, such as signing a deed of trust at closing. An involuntary lien is imposed without consent, such as a property tax lien or a court judgment.
• A general lien reaches everything the debtor owns in the county. A specific lien reaches only one identified parcel.
• A lien does not transfer ownership. It gives the creditor the right to force a sale and be paid from the proceeds.

What It Means

A lien is a monetary claim that a creditor records against a specific piece of real property, which ties the debt to the land instead of only to the person who owes it. Liens are the financial branch of the larger family of Encumbrance interests. The owner still holds title and can still live in, rent out, or sell the property, but the claim travels with the land until it is paid and a release is recorded.

Two questions sort almost every lien on the exam. First, did the owner agree to it? A deed of trust signed at closing is voluntary. A tax assessment or a court judgment is involuntary, because it lands on the property whether the owner consents or not. Second, how far does it reach? A general lien reaches all of the debtor's property, while a specific lien reaches one described parcel and nothing else. Liens are also ranked, because a property can carry several at once and a sale may not cover them all. If the debt is never paid, the lien holder can start a Foreclosure, force a sale, and be paid out of the proceeds in rank order.

How It Works in Washington

Liens are recorded, and recording is what makes them stick. In Washington, an unrecorded interest is void against a later buyer or lender who pays value in good faith and records first (RCW 65.08.070), so the county recorder's file is the practical record of what is owed against a parcel. That file is what a title searcher reads and what shows up as an exception on a preliminary title report.

Washington also puts hard clocks on some liens. A contractor, supplier, or design professional who has not been paid must record a claim of lien no later than ninety days after last furnishing labor, professional services, materials, or equipment (RCW 60.04.091), and must then file a foreclosure action within eight calendar months of recording or the lien stops binding the property (RCW 60.04.141). Property taxes work on a different principle. In Washington, taxes assessed on real property are a lien that must be paid and satisfied before any mortgage, judgment, or other obligation against the parcel (RCW 84.60.010), so a delinquent tax bill outranks even a first-recorded deed of trust in Lien Priority. When an open Construction Lien turns up on a listing, the deadlines are short enough that the client belongs in front of a real estate attorney, not waiting on the broker's read of the statute.

Example

Marisol lists her Spokane rental at $415,000. The preliminary title report comes back with two recorded claims against the property: a deed of trust with a payoff of $268,400, and a $9,750 claim of lien recorded eleven weeks earlier by a roofing contractor whose invoice she disputes. Her buyer's lender will not fund the new loan while an unresolved lien claim sits on the title. Marisol negotiates the roofer down to $7,200, he records a release, and the sale closes on time. Escrow disburses $268,400 to the existing lender, $7,200 to the roofer, and $24,500 in commission and closing costs, which leaves Marisol $114,900 in net proceeds. The roofer never owned any part of the house. The lien only gave him the right to be paid out of it.

Common Mistakes and Exam Traps

• Every lien is an encumbrance, but not every encumbrance is a lien. An easement or a deed restriction burdens the land without securing a debt.
• A lien does not make the creditor an owner. Ownership changes only if the lien is foreclosed and the property is sold.
• Recording order does not always decide priority. In Washington a property tax lien is paid ahead of mortgages and judgments that were recorded first.
• A deed of trust is a voluntary lien even though the borrower had little practical choice. Voluntary means the owner signed, not that the owner wanted it.