What is a Voluntary Lien?

A Voluntary Lien is a legal claim or encumbrance placed on a property with the consent or agreement of the property owner, typically to secure a debt or obligation. Unlike involuntary liens, which are imposed on a property without the owner's consent, voluntary liens are created voluntarily by the property owner through contractual agreements or legal instruments such as mortgages, deeds of trust, or security agreements. Common examples of voluntary liens include mortgage liens, home equity loans, mechanic's liens, and tax liens, which provide lenders, creditors, or service providers with a legal interest in the property as collateral for the debt owed to them. Voluntary liens are typically recorded in public records to provide notice to third parties and establish priority among competing creditors or claimants.

Voluntary liens and involuntary liens are both legal claims against property used to secure a debt, but they differ in how they are established and the circumstances under which they are created. Understanding these distinctions is crucial for property owners, buyers, and creditors. Here’s a detailed look at what distinguishes voluntary liens from involuntary liens and how each is recorded.

Voluntary Liens

Definition

A voluntary lien is a claim that a property owner willingly grants to a lender or creditor as collateral for a loan or obligation. This type of lien is entered into with the owner’s consent, typically as part of a financial agreement.

Common Types

1. Mortgage Liens: When a property owner takes out a mortgage to purchase a home, they agree to give the lender a lien on the property as security for the loan.
2. Home Equity Lines of Credit (HELOCs): Similar to a mortgage, a HELOC involves the property owner granting a lien to the lender in exchange for access to a line of credit secured by the home’s equity.
3. Auto Loans: For vehicles, the lender holds a lien on the car until the loan is paid off.

Recording Process

1. Loan Agreement: The borrower signs a loan agreement that includes the terms and conditions of the lien.
2. Lien Documentation: The lender prepares a lien document, such as a mortgage or deed of trust, which specifies the property as collateral.
3. Recording with Local Government: The lien document is recorded with the local county recorder’s office or land registry. This step makes the lien public record, providing notice to potential buyers and other interested parties.
4. Release of Lien: Once the loan is paid off, the lender issues a release of lien, which is also recorded to remove the lien from the public record.

Involuntary Liens

Definition

An involuntary lien is placed on a property without the owner’s consent, typically as a result of legal action or statutory requirements. These liens are used by creditors to secure payment of debts or obligations that the property owner has failed to meet.

Common Types

1. Tax Liens: Government agencies can place a lien on a property if the owner fails to pay property taxes or other taxes owed.
2. Mechanic’s Liens: Contractors, subcontractors, or suppliers can place a lien on a property if they have not been paid for work performed or materials provided.
3. Judgment Liens: When a creditor wins a lawsuit against a property owner, the court can place a judgment lien on the owner’s property to secure payment of the judgment.
4. Child Support Liens: Government agencies can place a lien on a property for unpaid child support.

Recording Process

1. Legal or Administrative Action: The lien is typically the result of a legal judgment or statutory action. For example, a tax lien is placed by a tax authority, or a judgment lien is placed following a court ruling.
2. Lien Documentation: The creditor or government agency files a lien document with the local county recorder’s office or land registry. This document includes details of the debt and identifies the property subject to the lien.
3. Public Record: Recording the lien makes it part of the public record, alerting potential buyers and other parties of the claim against the property.
4. Release of Lien: Once the debt is satisfied, the creditor or agency must file a release of lien document to remove the lien from the public record.

Key Differences

Consent

• Voluntary Liens: Imposed with the property owner’s consent as part of a financial agreement (e.g., mortgages).
• Involuntary Liens: Imposed without the property owner’s consent, typically due to unpaid debts or legal judgments (e.g., tax liens).

Purpose

• Voluntary Liens: Used to secure loans or credit agreements voluntarily entered into by the property owner.
• Involuntary Liens: Used to secure payment of debts or obligations that the property owner has failed to pay.

Impact on Property Sale

• Voluntary Liens: Usually known and agreed upon by the property owner, can be paid off or assumed by the buyer.
• Involuntary Liens: May complicate the sale of the property, as they need to be resolved (paid off) before the property can be transferred free and clear to a new owner.

Recording of Liens

Recording Process

• Voluntary Liens: Recorded as part of the loan process, with clear documentation prepared and agreed upon by both parties.
• Involuntary Liens: Recorded by the creditor or government agency without the owner’s direct involvement, often following a legal or administrative process.

Public Notice

• Voluntary Liens: Publicly recorded to provide notice of the lender’s interest in the property.
• Involuntary Liens: Publicly recorded to alert other potential creditors and buyers of the existing claim against the property.

Conclusion

Voluntary liens are established with the property owner’s consent to secure loans or credit agreements, while involuntary liens are imposed without the owner’s consent, typically due to unpaid debts or legal judgments. Both types of liens are recorded with local government offices to become part of the public record, providing notice to potential buyers and other interested parties. Understanding these distinctions helps property owners manage their liabilities and navigate the complexities of real estate transactions.