When Can a Lien Lead to Foreclosure?
A real estate lien creates a secured debt by providing the lender or creditor holding the lien with a security interest in your property. Although your mortgage lender attaches a lien to your home as a matter of course, any other real estate liens that attach to the property do so because of debts you left unpaid. In certain situations, property liens can result in foreclosure.
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Lien Foreclosure
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Foreclosure occurs whenever a lien holders calls due the debt that created the lien -- claiming your home as collateral. A mortgage lender will not foreclose on your home unless you stop making mortgage payments. Other lien holders, however, have the right to call their liens due and seize your home at any time.
When foreclosing on a property lien, a creditor must respect the collection rights of any creditors that hold previously attached or "superior" liens. Thus, a collection agency with a property lien could not foreclose on your home without first paying off your mortgage loan. Because the mortgage lien was filed before the collection lien, the mortgage holder's security interest supersedes the collection agency's.
Unpaid Taxes
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Leaving your federal taxes unpaid will result in the Internal Revenue Service (IRS) filing a lien against you. An IRS lien differs from other types of liens in that it automatically attaches to all assets you own -- including your home. IRS liens are an exception to the standard lien priority rule. Once the IRS files a lien against your property, the tax lien takes priority over any other lender or creditor's security interest -- giving the IRS greater debt recovery ability when seizing your home through a tax foreclosure.
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Lien Validity
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Lien holders can only seize property for the period of time that their liens remain valid. Although mortgage liens do not expire, all other property liens have a set validity period. Federal tax liens, for example, are only valid for ten years. Each state sets a different validity period for state tax liens and judgment liens. The Internal Revenue Service can renew a real estate lien for a consecutive validity period but does not always do so.
Judgment creditors cannot renew liens, but they can renew their judgments and subsequently "re-attach" a property lien. Some creditors disregard this option when renewing judgments since re-attaching a lien causes it to drop in the lien priority order -- making collecting the debt via the property lien unlikely.
Equity and Value
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Mortgage lenders initiate foreclosure proceedings whenever borrowers stop making regular loan payments. Other lien holders, however, consider your home equity and property value before moving forward with a foreclosure. Foreclosure is only in the lien holder's best financial interests if it can successfully recover the debt you owe by selling your home. Thus, if you lack equity in your home and your property value is low, a foreclosure would cost a lien holder more than it could collect and is not in the company's best interest. If you owe little on your home and the property carries a considerable value, however, lien holders have greater incentive to foreclose.
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