A lien on a home title can become a problem if the creditor attempts to collect or you desire to sell your home. Beyond paying the entirety of the home lien, there are a few ways that liens can be removed that do not involve full payment. Bankruptcy can also sometimes assist in the lien-removing process.
The purpose of allowing a lien to be filed against a home is to force the eventual repayment of a debt. Most liens, of course, on a home are voluntary such as mortgage or home equity loans. Other liens are involuntary such as tax liens, mechanics liens, or judicial liens. Tax liens are placed on a home when you do not pay your taxes. Mechanics liens are for work done on a home that did not result in full payment. Judicial liens can sometimes be placed on your home if judgment is rendered in the county that you live.
The most basic and obvious way to remove a lien is to pay or settle the debt. If you settle the debt, the creditor will usually agree to remove the lien. Many times you can settle these debts for less than the entire amount. The earlier that you settle or pay these liens the better: paying them at the closing table is usually a harder time to negotiate a discount.
Certain liens, especially tax liens, can sometimes be removed simply by the passing of time. Some tax liens have limited durations such as 4 years before they automatically expire. Other liens may be removed eventually simply due to the fact that the creditor wants to write off the loans or clear up something on their books. Keep in mind, however, that most liens will not simply “go away” just because of the passing of time.
Although no lien is usually automatically removed by a bankruptcy filing, certain liens in limited circumstances can either be satisfied or “avoided” by operations possible during bankruptcy. During a Chapter 13 case, a lien can be satisfied sometimes by proposal for complete or partial pay-off during the Chapter 13 case. Other times, such as in the case of judicial liens, a motion to avoid a judicial lien can be filed during the bankruptcy. This motion requires detailed information as to the lien and is never “automatically” filed on a case because it is an operation separate to the bankruptcy filing. If the motion is successful, an order will be granted that “avoids” the judicial lien.
Certain unsecured second or third mortgages can sometimes also be “avoided” in bankruptcy, but only on a Chapter 13 filing. This is also not an “automatic” feature of bankruptcy. To avoid a wholly unsecured mortgage (such as situations where just the first mortgage puts the house “underwater” in home value), an entire lawsuit (adversary complaint) must be filed during the Chapter 13 process to see whether the mortgage is truly “under-water” and should thus be “avoided.”