In the midst of an extensive (and oftentimes exhaustive) real estate process filled with unfamiliar or confusing terminology, homeowners might be confused about the usage of two different four-letter words: “lien vs levy.” The confusion is completely understandable and, unfortunately, all-too-common; many buyers (and even some real estate agents) use these two terms interchangeably.
The problem? A lien and a levy are actually different things —and the difference between the two can end up being quite consequential if either shows up on a title. Here, we’ll break down exactly what a lien is, what a levy is, how it affects a New Jersey homebuyer, and the key role title insurance can play in the process.
What is a Lien?
The simplest definition of a lien is a legal claim against a property to secure a debt. There are many different types of liens, but here are the most common ones you’ll see:
- Tax liens are legal claims used to secure payment for unpaid taxes. If the owner of a property has failed to pay their federal or state taxes on the property (or their income), the tax lien is the legal claim from the local or federal government placed on the property for the unpaid taxes.
- Mechanic’s or Contractor Liens are created by contractors, subcontractors, design professionals, suppliers, mechanics, or other workers in an attempt to recover the money owed for work performed. In New Jersey, professionals have to file a claim with the county where the work was performed.
- Judgment liens are court judgments for a creditor on a debtor’s assets to secure a monetary award owed to them. Legally, the court could award the creditor the debtor’s real estate or other assets (cars, for example).
- HOA liens occur when a Homeowners Association member fails to pay their dues, fines, assessments, or other financial obligations. The HOA board can attach the lien directly to the member’s home title.
What is a Levy?
A levy is the legal seizure of property or funds to satisfy that debt. The levy- a distinct legal step in the process- often follows an unresolved lien. This is a different step entirely from the lien, and all homeowners (especially those involved with the buying process for the first time) should be aware of it as they approach the closing table.
Lien vs. Levy: the Key Difference
These two terms should not be used interchangeably. A levy often follows a lien, but, again, it is a distinctly different part of the legal real estate process. Here’s a simple, side-by-side breakdown:
- The lien is the actual legal claim against a piece of property in an attempt to secure the debt, while…
- …the levy is the actual act of collecting on that legal claim. It’s important to note, too, that a levy does not always follow a lien; there are many different paths that the aftermath of a lien can go, and there are ways for parties to avoid the actual seizure that a levy entails.
Here’s a practical example from the list above: let’s say a court ordered a lien against a New Jersey homeowner for not paying their property taxes. If the homeowner worked out the finances with the authorities promptly, the levy (the seizure of the property for payment) might never go into effect.
Common Types of Liens that Affect NJ Property Titles
There are several common types of liens that you might encounter throughout New Jersey properties. Those include:
- Tax liens against New Jersey property owners who have failed to pay their taxes to the appropriate state or local authorities.
- Mechanic’s or contractor’s liens against those owners who have not paid contractors, subcontractors, mechanics, or other professionals for the work they have performed.
- HOA/condo liens against New Jersey residents who owe their Homeowners Association or condominium association unpaid dues, fines, fees, or other assessments.
- Judgment liens against owners who owe some sort of financial restitution to another party, as decreed by a court judgment.
- Environmental liens, against owners ordered to pay for cleanup costs due to contamination or pollution on their property. You can read more about these liens here.
How a Title Search Uncovers Liens Before You Buy
The best defense against any problems with liens on your future property? An extensive title search from an experienced title search company. A title search is an in-depth exploration of the necessary records and sources for a property, uncovering any issues (including unpaid liens) that might affect your purchase. Without this type of title search, an unpaid lien on the property (not necessarily the owner who incurred the lien) could become your responsibility after closing. In the worst-case scenario, a levy could actually start the collection of the legal claim.
An in-depth title search helps avoid that unpleasant possibility.
How Title Insurance Protects You From Undisclosed Liens
The second piece of defense against undisclosed liens is title insurance. A title insurance policy covers you against any liens that existed on the property but were uncovered after the closing; that includes liens that were either not disclosed during the process or missed by a title search. A title insurance policy provides the protection you need for any of these undisclosed liens on your significant purchase.
Get a Clear Title With Cortes & Hay
A “clear title” is what every New Jersey homeowner needs for their purchase – the title to their home clear of any issues that might cause them financial harm in the future, especially undisclosed liens. A veteran, local title insurance agency like Cortes & Hay is here to help with a title search and title insurance, giving your New Jersey real estate investment the title protection it deserves.
Ready to get started? Contact us today.
Frequently Asked Questions
A lien is a legal claim against a property used to secure a debt, while a levy is the actual legal seizure of property or funds to satisfy that debt. In short, a lien establishes the claim, and a levy is the act of collecting on it.
No. A levy often follows an unresolved lien, but it doesn’t always happen. If a homeowner resolves the debt with the authorities before it escalates, the property may never be seized through a levy.
Yes, unfortunately. An unpaid lien can attach to the property itself, not just the previous owner, which means it could become your responsibility after closing if it isn’t uncovered beforehand. This is why a thorough title search is so important.
An in-depth title search from an experienced title company, like Cortes & Hay, examines property records to uncover unpaid liens and other title issues before you close, so you know exactly what you’re purchasing.
This is where title insurance comes in. A title insurance policy protects you against liens that existed on the property but weren’t disclosed during the process or were missed by a title search, giving you financial protection after closing.