If you’ve ever heard the phrase “you have a lien on your property”, you know how damaging this can be not only to your financial well being but also to your credit scores. For those that are unfamiliar with liens, here is an overview of what liens are, what causes them, and what you can do once you’ve been hit with a lien.
What is a Lien?
A lien is a type of legal document where a creditor stakes a claim on your property or money. Although you still own the property, you’re limited as to what you can do with the property. You may not be able to sell the home and may not even be able to take out a second mortgage on the home. Liens are a method of debt collection used by creditors and are probably the most damaging to debtors.
What Types of Liens Are There?
Although there are several different types of liens that can be placed on your home by creditors, there are the three most common types of property lien.
- Judgment Lien – This type of lien is often put against your home if you had a judgment against you and lost the case in court. It stays until you pay off the debt.
- Tax Lien – This is a lien put on your home by the state or federal government if you fail to pay your county, state, or federal taxes. Property tax liens generally take precedence over any other liens and even over your mortgage.
- Mechanic’s Lien – This type of lien is put on your home by general contractors who work on your home to ensure they get paid by you.
How Can a Lien Affect My Credit Score?
Liens have a very negative effect on your credit report. There really isn’t anything that can damage your credit more than a lien. Liens and other adverse public records can stay on your report for up to ten years. Tax liens that go unpaid can stay on your credit report for fifteen years or possibly indefinitely.
The effect a lien can have on your credit score depends a lot on what else is on your credit report. If you have a lot of negative things on the report, the lien can affect it much worse than if there is otherwise positive things listed on the report.
How Do I Get a Lien Off My Credit Report?
Unfortunately, getting a lien off your credit report is often easier said than done. It can be removed, but may take up to two months, and that’s generally only after the debt has been paid.
If the property lien is the result of unpaid debts, you can contact the creditor as soon as the bill is paid, and they will generally remove the lien. If it’s a tax lien, the IRS will generally remove it within 30 days after the debt is paid. The IRS recently implemented a program called “Fresh Start” that allows eligible debtors to request the IRS remove a lien even if the debt isn’t yet paid.