If this is your first time buying a home, chances are you’ve taken out a voluntary lien. At this moment, you are investing in your property and placing it in collateral. You might be tempted to take out a lien, so we’ll be here to help you understand the process. We’re going to look at whether a mortgage is a voluntary lien.
Yes, a mortgage is a voluntary lien. The lien is voluntary because it is a contract signed by both lienholder and the debtor. Since the debtor has taken the mortgage out on the property, the lien will remain until they can fully pay it off.
Keep in mind that you’ll have to communicate with your lienholder when taking out a mortgage. Doing so will ensure that both sides understand their part and aid you in removing the lien over time.
Is A Mortgage A Voluntary Lien?
A voluntary is made because of an action made by the debtor. In real estate terms, the debtor signs a mortgage on a property with the agreement to pay the lienholder back. If they cannot, the lienholder has the right to foreclose the home.
When you take out a loan for a house, the lender will make a title search to ensure no liens are attached. Title insurance happens throughout the buying process, and based on the title, it can protect you from future undisclosed property claims.
Usually, the property owner cannot sell their property until the lien is fully paid off. The voluntary lien will reflect the house’s total value that’s under collateral. If they default on the loan, the lienholder will reclaim the house or possess the property owner’s vehicle.
Based on the type of the lien, it could mean that you’ve agreed to use your house as collateral to pay off an owed debt. It could mean that you could not pay off a lien, and the creditor is planning to foreclose the home to pay off the remaining debt.
Either way, the best way to deal with a voluntary lien is to pay them off. That way, the lender cannot reclaim financial control over your property. Before taking out a mortgage, ask how much you’ll pay monthly to see if the home fits your budget.
Examples of a Voluntary Lien
Here’s how most voluntary liens work. Let’s say you take out a mortgage on a new home. While you have the title stating you’re the property owner, the lienholder can place a lien on it because they’ve lent you money.
If you continue to make monthly payments on your property, the lien won’t come into effect. Your lender will take you off the line once you’ve paid it off, either through house sale proceeds or during the end of a mortgage term.
As we stated earlier, if you don’t make your mortgage payments on time, the lienholder will start the foreclosure process. Once this occurs, the lienholder will reclaim ownership of the property and sell it to make up for your loss. The lien legally allows them to do this.
If you have multiple liens on your property, then expect the other lienholders to take the proceeds of the house after paying off the senior lender.
Let’s face it; mortgages are extensive and complicated documents. The document outlines the rights and responsibilities of the borrower and the lender.
Bank attorneys draft these documents to ensure that both parties agree upon their terms. When they do find an agreement, both borrower and lender sign the document, and that’s when the lien is initiated.
Property mortgages are placed on the property and not the homeowner. The lien will affect the previous owner’s credit score even if the property is sold.
When a buyer and seller come to terms with an agreement in real estate, a closing period is scheduled. A title company checks to see any previous liens on the property and gives title insurance throughout the transaction.
This ensures that the title will clear after the previous liens are paid off. The lender pays off the previous liens during the closing period while the seller pays the closing costs.
Home refinancing is a similar process because the new lender might require title insurance for the mortgage. If you have a home equity loan, you might not need a title company for this procedure.
When the closing period is successful, the mortgage and other documents are signed. Once the agreement is fully settled, you’ll usually sign these documents at a broker’s office or a bank.
Can Voluntary Liens Affect Homeowners?
Voluntary liens won’t negatively affect you as long as they’re paid off on time. In fact, the monthly payments can lead to increased credit scores and credit history.
Everyone who takes out a mortgage has a loan on their property. Once the mortgage is fully paid off, the title clears and extinguishes the lien.
However, an involuntary lien can negatively affect a homeowner’s credit score. Most involuntary liens are made due to unpaid bills. If you’re late on your mortgage payment, it can stay on your credit history for up to 7 years.
How to Remove Voluntary Liens
You’ll have to convince your lienholder to remove the voluntary lien. The best way to do this is by paying off the lien in full. Make sure to get proof that the lien is removed via Release of Lien forms.
Alternatively, if you cannot fully pay off the lien, you can negotiate a partial or full payment plan with the lien holder. Once that works, they’ll sign the lien release.
However, there are times when the lien is invalid. This is when you contact your court and create a court order to take your name off the lien. Make sure you give evidence to prove the lien is invalid.
To conclude, a mortgage is a voluntary lien. When you have a lien placed on your property, always speak to the lienholder to agree when you’ll pay it off. That way, you can continue to have your home while removing the lien in the long term.