There are three ways that a creditor can place a lien on real estate. First, you can consent to the lien when you borrow money and pledge your real estate as collateral. This is normally a mortgage or home equity line of credit. However, you may also not realize that you are allowing a creditor to place a lien on your property when you borrow money to finance some type of home improvements. Many times, individuals sign what is called a deed of trust as part of the financing arrangements for a home improvement loan. This is recorded in the land records and gives the creditor a lien against your property that is treated the same way as a mortgage.
The second way that a creditor may obtain a lien against your real estate is by obtaining a judgment against you and then having the judgment recorded in the city or county where you own real estate. In Virginia, if the Judgment is obtained in the same city or county where you own real estate, it automatically attaches to your property.
The third way that a creditor can obtain a lien against your property is by a statute or law that allows them to have a lien on your property. For instance, the IRS can file a tax lien in the city where you live and it will attach to your property. The city can also place a tax lien against your property for unpaid real estate taxes.
In a Chapter 7 bankruptcy in Virginia, you may not remove a voluntary lien such as a mortgage or home equity loan. However, you may be able to remove an involuntary lien such as a tax lien or a judgment lien. If your property is worth less than you owe on the mortgage(s) or if it's value is very close to the amount owed, you may remove an involuntary lien from the property. There are two major factors that must be considered when seeking to remove an involuntary lien. First, is the value of the property. You will have to have an appraisal done to show the actual market value of the property. The second factor is the date that the lien was recorded. The liens attach to the property in the order of the date that they were recorded. I have seen cases where a client had a judgment lien and a second mortgage. The judgment lien was recorded before the second mortgage and could not be removed because the property was worth more than was owed on the first mortgage, even though the property was worth less than the two mortgages combined.
It should be clear that the removing a lien from your property is something that requires the assistance of an experienced bankruptcy attorney. Before you can even seek to remove a lien, you must know if there is one. I have a lien search done for any of my clients who own real estate that they want to keep so we find out if there are any hidden liens out there.
If you have tax debt or have been sued over a debt and you own real estate, contact me or call my office today at 757-320-2010. I will meet with you to evaluate if you can remove a lien from your real estate in a Chapter 7 bankruptcy.