By Gina Pogol
Mortgage Credit Problems Columnist

Mark Asks:  Dear Gina, A friend of mine was all set to refinance his house but then was told he couldn't get his loan funded because of liens on the property. He didn't even know they were there? What are these liens and why can't he close his loan?  - Mark in Las Vegas

Gina Says: Hi Mark,  Thanks for writing. A lien is simply a publicly recorded claim against your property.

When you take out a mortgage, for example, the lender places a lien on the house. This public record protects the lender from later claims filed by others. For example, your first mortgage lender records a claim. This establishes its right to be paid first if you default. Another claim, from a second mortgage holder for example, could only be paid after the first lien was satisfied. These are normal liens and shouldn't be a major concern. But then there are liens that can cause bad credit and really throw a monkey wrench into a home sale or refinance. For example:

• Uncollected Taxes. A lien on real property can be recorded against you for debts that have nothing to do with your house. For example, overdue federal and state taxes, such as income tax, sales taxes, and fines, can become liens on your property if the taxing agencies follow certain procedures.
• Unpaid Child Support. Depending on where you live, unpaid child support can result in a lien on your home.
• Protection of a Former Spouse's Interest. The court in a divorce case can award one spouse use of the marital home, but grant the other spouse a lien on the house to enforce a partial ownership of the property.
• Enforcement of Judgments. If you blow off a debt, and the creditor goes to court and wins a judgment, the law usually lets the creditor record that judgment in the county records so that it becomes a lien on your property.
• Contractors' and Mechanics' Claims. A contractor has a right to file a form with the recorder's office when payment is not made for materials or services provided for the improvement of real property. The claim becomes an encumbrance on the property. In some states, the contractor is required to file a notice of lien prior to commencing work on the property or supplying materials. The laws governing the right of a contractor to place a lien on real property vary greatly from state to state, but they usually share some basic features.

Liens can make it extremely difficult to sell or refinance your property. In most transactions, a bank or other mortgage lender will not provide mortgage financing until all liens on the property have been removed and the title cleared.

If you don't believe you owe the claim, sometimes you can "bond around it" and deposit an amount in escrow to cover what the creditor claims you owe. Once the case is settled, the funds are released to whoever prevails in court, arbitration, or other appropriate setting.

Other Recommended Ask MCP Articles

• Can you use a reverse mortgage to buy a home if you have bad credit?
• Applying for a mortgage with a new job
• 15-year vs. 30-year mortgage: Is one better for people with bad credit?