Liens and Lien Priority

Understanding Liens and Their Classifications

In real estate practice, an encumbrance is any claim, right, or interest held by someone other than the property owner. Encumbrances can take many forms, but every lien is specifically classified as a financial encumbrance. A lien represents a monetary claim against real property established to secure the payment of an underlying debt or obligation. The creditor who holds this financial claim is legally known as the lienor, while the property owner whose real estate is subject to the claim is called the lienee. When working with buyers and sellers under the direction of your supervising broker, it is vital to remember that a lien constitutes a claim against property, not ownership of it. Furthermore, title arrangements involving mortgages and deeds of trust vary by state law.

A foundational principle of real estate law is that a lien typically runs with the land. A lien generally remains attached after an ordinary transfer of ownership, but it may also be extinguished through a foreclosure or other legally authorized process. For example, if an owner sells a parcel without satisfying an existing lien against the title, the debt remains secured by that parcel, leaving the buyer's new ownership interest encumbered. Real estate salespersons must therefore understand how liens originate, how they attach to title, and how they are classified under applicable law.

Liens are classified by how they are brought into existence: voluntary or involuntary. A voluntary lien is created with the intentional consent and affirmative action of the property owner, such as when a borrower executes a mortgage or deed of trust to purchase a home. Conversely, an involuntary lien is placed on the property by operation of law without the consent of the owner. Involuntary liens can be statutory or equitable. A statutory lien arises directly under a statute without owner consent, with specific attachment and enforcement steps governed by applicable law. An equitable lien is a security claim recognized under principles of equity; it may arise from an agreement or be imposed by a court to prevent unjust enrichment, depending on the circumstances and applicable law.

Liens are also classified by the scope of property they encumber: specific or general. A specific lien attaches to identified property rather than generally to a debtor's assets; some specific liens, such as a blanket mortgage, can cover multiple identified parcels. A general lien can attach to multiple assets belonging to the debtor rather than being restricted to a single designated parcel. Depending on the type of lien and applicable law, a general lien may also reach property that the debtor acquires after the lien initially arises.