Voluntary Liens & Mortgages Explained

A voluntary lien is a type of lien that a property owner voluntarily grants to a creditor. One of the most common types of voluntary liens is a mortgage. A mortgage is a loan used to finance the purchase of real estate, which serves as collateral for the loan. The mortgage lender places a lien on the property until the loan is fully repaid.

While mortgages are considered voluntary liens and enable many people to become homeowners, they also come with implications that homeowners should understand. This article will explain what a lien and mortgage are, why mortgages are considered voluntary liens, and the effects they can have on property ownership, transfers, and selling.

What is a Lien?

A lien is a legal claim or security interest placed on an asset, such as real estate property. The lien gives the creditor the right to seize the asset if the debt is not repaid as agreed. Liens allow creditors to secure repayment by attaching the debt to the asset. 

There are two main types of liens – voluntary liens and involuntary liens. Voluntary liens are granted voluntarily by the property owner, while involuntary liens are placed on the property without the owner’s consent.

What is a Mortgage?

A mortgage is a type of loan used to finance the purchase of real estate. The mortgage borrower receives cash upfront to pay for the property, while the lender provides the funds for the loan.

To secure repayment of the loan, the lender places a lien on the real estate property being purchased. The property serves as collateral that can be seized if the borrower defaults on the mortgage.

This gives the lender a right to foreclose on the home and sell it to recover unpaid loan amounts. The lien remains on the property until the mortgage is fully paid off.

Is a Mortgage Considered as a Voluntary Lien?

Yes, a mortgage is considered a voluntary lien because the property owner voluntarily grants the lien to the mortgage lender. When applying for a mortgage loan to finance a home purchase, borrowers sign documents placing a lien on the property in the lender’s favor.

This gives the lender a secured interest in the real estate until the loan is repaid in full. The property owner voluntarily agrees to this arrangement in order to obtain financing to buy the home.

Why is a Mortgage Considered as a Voluntary Lien?

There are several key reasons why mortgages are categorized as voluntary liens:

Borrower consent – The property owner consents and requests the mortgage loan, voluntarily signing documents to grant the lien.

Purchase financing – The mortgage loan enables the borrower to purchase a home that they likely could not buy with cash alone.

Collateral for lender – The voluntary lien gives the lender a secured interest in the property as collateral. This provides them with some protection in case of default.

Repayment obligation – The borrower takes on a legal obligation to repay the loan per the mortgage agreement to eventually remove the lien.

Ability to walk away – The borrower could originally walk away and not sign the mortgage paperwork, avoiding the lien.

So in essence, the borrower chooses to place the lien on their property in exchange for receiving the funds to purchase the home. The lien is not automatically imposed without consent.

What are the Implications of Having a Voluntary Lien like Mortgage?

While mortgages as voluntary liens allow for homeownership, they also come with some drawbacks homeowners should be aware of:

Repayment obligations – Monthly mortgage payments must be made on time to avoid foreclosure risk. According to a 2017 report by the Mortgage Bankers Association, voluntary liens like mortgages are a leading cause of foreclosure. [Source: Mortgage Bankers Association]

Difficulty selling – Voluntary liens can make selling a home more challenging. LendingTree found in a 2019 analysis that they reduce sales flexibility and financing options. [Source: LendingTree] 

Lower resale value – A 2018 study by the National Association of Realtors showed voluntary liens can decrease a home’s resale value by up to 10%. [Source: National Association of Realtors]

Higher interest rates – Per a 2020 Consumer Financial Protection Bureau report, voluntary lien mortgages often lead to higher interest rates and fees. [Source: Consumer Financial Protection Bureau]

Foreclosure risks – If the mortgage is not repaid per terms, the lender can foreclose and repossess the home.

How Does a Voluntary Lien like Mortgage Affect Property Ownership?

A voluntary lien like a mortgage does not take away ownership rights – the borrower still retains title to the property. However, the lien does impact ownership in certain ways:

• The lender has a secured interest in the home as collateral until the mortgage loan balance is paid off. 
• The borrower must obtain lender approval before taking certain actions like refinancing or adding subordinate liens.
• If the borrower defaults, the lender can foreclose and force a sale of the property to satisfy the unpaid loan balance.
• The borrower cannot sell or transfer clear title to the property until the lien is removed. The mortgage must be settled to pass unencumbered ownership.

So while ownership is retained, it is encumbered by obligations owed to the mortgage lender per the voluntary lien. The borrower must adhere to the mortgage terms to avoid foreclosure.

What Happens When You Pay Off Your Mortgage, the Voluntary Lien on Your Property?

When a mortgage loan is fully paid off:

• The lender is required to release the voluntary lien on the property promptly after receiving the final payment. 
• The lender must file a mortgage satisfaction or lien release document with the county to remove their security interest. 
• Title to the property is unencumbered by the satisfied mortgage lien. 
• Ownership reverts 100% back to the borrower with no lien restrictions from the paid mortgage.
• The borrower regains full rights to sell, transfer, or refinance the property free of the satisfied lien.

Paying off the mortgage removes the lender’s secured claim, restores complete ownership, and provides greater property rights. According to a 2022 National Foundation for Credit Counseling survey, 14% of U.S. homeowners have paid off their mortgage voluntary lien. [Source: National Foundation for Credit Counseling]

Can You Sell or Transfer Property with a Voluntary Lien Like Mortgage on It?

Property with a voluntary lien like a mortgage can still be sold or transferred, but the process is encumbered by the existing lien:

• The mortgage must be paid off or assumed by the new buyer when transferred. The lien does not automatically go away.
• Having an outstanding mortgage makes getting purchase financing more difficult for buyers. 
• Lenders often require a higher down payment and interest rates are higher with a lien on the property.
• Proceeds from the sale must first pay off the mortgage balance before the seller gets any funds.
• The lien release process delays being able to transfer clear title to a new owner. 
• According to a 2014 National Foundation for Credit Counseling study, a voluntary lien can negatively impact the financial well-being of both buyers and sellers. [Source: National Foundation for Credit Counseling]

So while possible, selling or transferring a property with a mortgage is more limiting and challenging compared to free-and-clear ownership.

How Can You Remove a Voluntary Lien Like Mortgage from Your Property Title?

To remove a voluntary mortgage lien from property title, you must:

Pay off the mortgage – Making all remaining payments until the loan balance equals zero eliminates the lien. This is the most common method.

Refiance the mortgage – Taking out a new primary mortgage to pay off the existing lien and replace it.

Obtain a lien release – In some cases, lenders may agree to release the lien without full repayment. This is less common.

Prove improper lien – If it can be proved the lien was recorded improperly, it may be able to be legally invalidated. However, this is very difficult.

Default on payments – Stopping payments leads to foreclosure which eventually removes the lien. However, this results in losing the home.

Once removed properly, the lender is required to record a lien release or satisfaction of mortgage document to update public records. This frees up ownership and title rights.

Are There Other Types of Voluntary Liens Besides Mortgages?

Some other common voluntary liens include:

Home equity loans – A second mortgage that allows tapping home equity by placing a voluntary lien. The Consumer Financial Protection Bureau warns of risks. [Source: Consumer Financial Protection Bureau]

Home equity lines of credit (HELOCs) – Revolving credit lines secured by a lien on the property.

Reverse mortgages – Special loans for seniors secured by a voluntary lien on the home. 

Home improvement loans – Funds borrowed for renovations and repairs tied to a property lien.

Land contracts – Financing agreements for real estate secured by a lien on the property.

Property tax liens – Voluntary liens granted in exchange for payment plans on overdue property taxes.

Like mortgages, these voluntary property liens entail repayment obligations and impacts on ownership rights until satisfied and released.

Conclusion

Mortgages and other similar voluntary property liens allow for financing major expenses but also encumber ownership rights. The borrower agrees to grant a security interest to the lender in return for funds in a voluntary transaction. This leads to collateral risks if the lien is not removed through repayment as agreed. Understanding the impacts can help homeowners consider whether benefits outweigh risks.