1. Tax Lien
If you fail to pay your taxes, the Internal Revenue Service can place a lien on your property, which includes your real estate, personal property and financial assets. This is called a federal tax lien.
A federal tax lien shouldn't catch you by surprise. The IRS sends you a bill, called a Notice and Demand for Payment, which explains how much you owe. The IRS files a Notice of Federal Tax Lien, which notifies creditors that the government has a legal right to your property, if you don't pay the debt in time. You have a right to appeal a federal tax lien. The IRS eliminates the lien within 30 days after you've paid your debt in full.
2. Judgment Lien
Any sort of lender — credit card, medical or other creditor — can hit you with a judgment lien if they file a lawsuit against you for money you owe. A judge awards the lender a right to your property for the amount claimed in the lawsuit. Lenders use judgment liens as the main way to collect the money you owe. For example, if your home is worth $100,000 but you still owe $60,000 on your mortgage, you would have $40,000 in equity in your home. So, a creditor could take from that amount (in some states) if you sell your home.
"You're most likely going to know about the lawsuit and you'll probably know that there's judgment against you," Loftsgordon says. "You'll have some idea to go look for it."
Besides paying off the debt, you can ask the court to remove a judgment lien in most states, if you can prove, for instance, that the correct legal procedures weren't followed. This won't be an easy process, but it's possible. Or you could, as a last resort, declare bankruptcy and have the lien avoided, which could seriously affect your credit rating.
3. Mechanic's Lien
Contractors, subcontractors and suppliers can also be lien-holders. Contractors can place a lien on services they provide, such as repair work or construction on your property, in the amount you owe them if you don't pay for the services. In most states, the contractor is required to let you know if they intend to file a lien, according to Loftsgordon.
"The creditor will likely need to comply with state notice requirements and record documents in the proper government office to perfect a valid mechanic's lien," says California bankruptcy attorney Cara O'Neill via email. "If the mechanic's lien is valid for a limited time, the lienholder will likely need to file a lien foreclosure lawsuit to avoid voiding the lien."
The contractor can proceed to collect the judgment if you can't settle the case. You can remove this lien by paying what you owe. The lienholder has the responsibility to remove the lien once you pay. It won't be removed automatically. If you feel you have a valid reason for not paying (for instance, the work wasn't completed), try to negotiate with the contractor by showing your evidence (invoices, photos, etc.) If that doesn't work, you may have to go to court to have it removed.
"It might also be possible to remove a lien in bankruptcy," O'Neill says. "Or, if the debtor files the bankruptcy case quickly enough, prevent it from attaching altogether."
Another method for getting rid of lien is to offer partial payoff to a lienholder. "Not everybody knows that you could offer up a lump sum, like half of what your debt is," Loftsgordon says.
4. Other Types of Involuntary Liens
Your homeowners or condominium association can place a lien on your property if you don't pay your monthly fees. But the association warns you about this beforehand. The court can also place a lien on your property if you don't pay your child support.