According to the IRS, a lien can be legally defined as "a charge or encumbrance that one person has on the property of another as security for a debt or obligation." A lien can be placed on an investment property owned by multiple parties, if a creditor wins a debt judgment against one of the owners. The lien will attach to the percentage of ownership interest the debtor has in the property.
A lien does not change the ownership or qualities of a property to which it is attached; it merely indicates that some other party has a claim against it. When you purchase a property with a mortgage loan, the lender places a lien against the property. Other types of property liens include, but are not limited to: tax liens for past-due federal and state taxes; property-tax liens; liens placed on the property for unpaid child support; mechanics' or contractors' liens for nonpayment of services and materials provided for property improvement; and judgment liens used to enforce a creditor's court-awarded judgment against you.
A creditor has the legal right to place a lien on an investment property owned by multiple parties, only after being awarded a judgment subsequent to filing a lawsuit with the court. How the lien gets attached to the property depends on the form of ownership held by the multiple parties. If you have an ownership interest in the investment property and you owe money to a creditor who sues you and wins a judgment, the lien placed by the creditor works differently, depending on what form of joint ownership the parties share.
There is no limit on the number of parties who can hold title, or have an ownership interest in an investment property. If the deed indicates the investment property is owned by you (the debtor) and multiple other parties, through joint tenancy, the creditor's lien only attaches to your share of the joint tenancy. If you transfer your share to another party, the lien remains enforceable. However, if you die, the lien is dissolved and cannot be enforced against the remaining owners.
Tenancy in Common
If the ownership type is tenancy in common, the lien attaches to your ownership interest only and remains attached even if you transfer or will your interest to another party. An exception to lien attachment is when an investment property is owned through tenancy by the entirety or community property (in certain states) by a married couple. In this case, the lien attaches to all ownership interests and remains attached if the property is transferred. When the property does not specify the type of joint ownership, the property is viewed as tenancy in common.
Property Lien Release
A property lien must be released if you pay your outstanding debt in full. In some states, a creditor's judgment may become void after 25 years, which lawfully releases the lien. The creditor must file a document with the appropriate governmental entity, signifying it no longer has a valid claim against your interest in the property. Liens can create a lot of difficulty when selling or refinancing a property.
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