What Is a Foreclosure for Claim of Lien?
A lien acts a claim upon the title of real property that an organization holds as collateral until a debtor pays off his obligations. If a debtor refuses to fulfill his contracts, a court can order property with a lien attached to be sold in order to compensate creditors. In some cases, such as a nonjudicial foreclosure or an Internal Revenue Service tax levy, the creditor does not need a court order in order to foreclose upon a property.
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Tax
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The Internal Revenue Service can place a lien on a home in order to recover delinquent taxes owed to the federal government. If the homeowner sells the property, the IRS receives its owed monies from the lien. If the debtor refuses or is unable to pay off his tax obligations, the IRS can foreclose upon a property by using a federal tax levy, which will result in the foreclosure of the property. An IRS levy differs from a typical lien, as the federal government does not need a court order to foreclose upon a home. State governments may also place a lien upon a homeowner's property in order to recoup lost tax revenue.
Construction
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If a contractor makes improvements to a property or builds a new home and the customer does not pay him for his work, he usually has the right to place a lien on the property by filing an action in local court. The customer has a set period of time dictated by a court order to pay the contractor with interest or the home will be foreclosed upon. Once the home is sold, part of the proceeds will go to the contractor to satisfy the lien.
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Debt
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If a borrower refuses to make good upon his credit card obligations or personal loans, a creditor or collection agency can take legal action against the borrower. In some states, such as Texas, creditors cannot place a lien on a primary residence to collect debts. In other states, the creditor can file suit in court, and the judge will award him damages. If the creditor cannot garnish the debtor's paychecks or bank accounts in order to recover the debt, a judge can place a lien against a home in order to serve as collateral for the debt. If the borrower fails to bring the debt current, the court may order the home to be sold to satisfy the debt.
Mortgage
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Most mortgage contracts place a lien on the homeowner's property until he has satisfied the mortgage debt in full. If a borrower gets behind on his payments and the bank initiates foreclosure proceedings, the lender can have a trustee sell the property in order to recover the lender's collateral. Most mortgage contracts contain a power of sale clause that allows for a nonjudicial foreclosure, while judicial foreclosures permit the lender to sell the property at auction after a notice of sale.
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