When a homeowner encounters a property lien in North Carolina, it can be a source of confusion and frustration. As such, all homeowners must understand property liens, their possible consequences, and how they can affect them. It is not always easy to navigate the ins and outs of liens, especially without a lawyer or an agent.
What Is a Property Lien in North Carolina?
Simply put, a property lien is a legal claim on a person’s assets. The individual or entity holding the lien gains access to the property if the owner fails to settle their debts. A state agency must typically approve property liens, and the claimant must file it with the county recorder’s office. This lien is then delivered to the property holder or owner, letting them know that action is underway to repossess their property.
How Does a Property Lien in NC Work?
Creditors can use property liens in a wide range of situations. They can apply to a variety of assets, too, including but not limited to real estate property, cars, equipment, and even boats. More often than not, though, creditors apply them to real estate.
Homeowners in North Carolina should be careful and pay their debts accordingly. Otherwise, they may find themselves on the receiving end of a property lien. Creditors come in all shapes and forms. Some are contractors responsible for building homes, while others are mortgage lenders who expect borrowers to repay their debts regularly. They can even take the form of homeowners associations.
Once there is a lien on a home, the property owner will have a harder time selling it. The creditor can collect the unpaid debt from the proceeds of the property sale. Only once the debt is satisfied can the property owner receive any money.
In North Carolina, though, there is a homestead exemption. This exemption protects a specific amount of a debtor’s property value if it is their primary residence.
What Does It Mean to Perfect a Lien?
To perfect a lien, one must file a lawsuit to enforce a claim of lien on the property within 180 days from the date of the last work or materials used on the project. The perfected lien is a legally binding document the creditor submits to the relevant state or local agency.
When Is a Property Lien in North Carolina Used?
Most of the time, creditors will attempt to collect unpaid debts through other means, including contracting the services of a debt collection agency. A property lien is usually the final step in the collections process or a last resort in their arsenal. Sometimes, the debt collection agency will be the one to initiate the claim of lien.
Borrowers or debtors often have a difficult time dealing with liens. Property liens usually indicate that a creditor intends to collect on the debt by initiating foreclosure proceedings. This means the borrower or debtor can lose their property — in many cases, they lose their homes. When foreclosure does happen, the proceeds from the foreclosure sale will then be used to satisfy liens according to lien priority.
Property liens from mortgage lenders are perhaps the most common type. However, these liens can also be a mechanic’s lien. A mechanic’s lien is a lien that a contractor files for unpaid sums for performing work on a home or vehicle.
Property Lien vs Judgment Lien in North Carolina
Is there a difference between a judgment lien and a property lien? Mostly, it hinges on how the creditor secured the lien.
Property liens are typically obtained with the debtor’s voluntary consent, often in a loan for a significant purchase such as a house. In contrast, judgment liens arise when a creditor wins a lawsuit against the debtor for an outstanding debt.
When obtaining a loan for a substantial purchase, like a home, borrowers commit to repaying the debt by signing a contract known as a “promissory note.” Due to the considerable amount borrowed, creditors seek to limit the financial risk by requiring a security interest in the property. The creditor does this through a condition that the debtor provides a lien on the purchased property, commonly executed through a mortgage or deed of trust.
To formalize the property lien, state law typically mandates the creditor to “perfect” it by recording the lien in county records and providing notice to other interested parties. Once the debtor fulfills the debt, the creditor must remove the lien.
In contrast, a judgment lien is secured when a creditor wins a lawsuit against the debtor. After securing a judgment, the creditor records the lien in the relevant county, linking it to the judgment as evidence of entitlement.
Removing or releasing a lien is generally necessary before selling, refinancing, or transferring the property, regardless of whether it is a property lien or a judgment lien.
How to File a Property Lien in North Carolina
The North Carolina county where the judgment is entered automatically establishes a lien on the debtor’s property within that county. If the debtor owns property outside the county, the creditor must file it with the county clerk where the property is situated.
How to Dispute a Lien on Your Property in North Carolina
Here are some ways to remove a property lien in North Carolina.
1. Settle the Debt
Liens arise from the nonpayment of debts, so it stands to reason that settling the outstanding debt will release the lien. Make sure to speak to the creditor and let them know of the payment. After payment, the creditor will file a release, removing the lien from the property.
2. Make a Partial Payment
An owner may be able to negotiate a partial payment of the outstanding debt to release the lien. This, of course, hinges on the creditor’s willingness to make a deal. Hiring a debt settlement lawyer to assist with the negotiations is best.
3. Go to Court
A person may ask a court in North Carolina to remove a judgment lien, mainly if there is a reason to believe that the lien is invalid. For example, if a debtor believes that the creditor obtained the lien through fraud, coercion, or other illegal methods, it is possible to file a motion in court to remove the lien.
A debtor can also ask a court to remove a valid lien if the creditor did not follow proper legal procedures when obtaining the lien. For example, if the lienor did not file the lien by the required deadline or did not serve a copy of the lien to the debtor.
Remember that lawsuits to remove property liens in North Carolina can cost a lot of money. The process can also be complex and time-consuming. Therefore, it is best to work with an experienced real estate lawyer.
4. Wait for the Expiry
Debtors can also wait for the lien to expire, which is no longer enforceable. In North Carolina, a judgment lien remains enforceable for 10 years. After that, it expires. However, it is essential to note that liens can be extended, though this renewal is not automatic.
5. File for Bankruptcy
Filing for bankruptcy could render liens unenforceable through lien avoidance or lien stripping. Of course, filing for bankruptcy is a big step that a person should only consider as a last resort. A bankruptcy attorney should come in handy.
How Long Does a Judgment Lien Last in NC?
According to North Carolina lien law, a judgment lien remains attached to the property of the debtor for 10 years. The lien remains even if the property changes hands. However, creditors can file for an extension of the lien for another 10 years.
Avoiding Property Liens in North Carolina
Dealing with a property lien in North Carolina is no trivial matter. Owners can lose their homes, among other things, through liens. While the easiest way to avoid property liens is never to miss a payment on debts, the harsh reality is that some owners get left behind or default on their payments. In that case, owners would be wise to familiarize themselves with property liens and hire a lawyer for assistance.
Cedar Management Group helps homeowners associations manage their communities, including collecting dues and minimizing delinquencies. Call us today at (877) 252-3327 or contact us online for a free proposal!
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