Whether you have heard the term “lien” in the past or are just hearing it for the first time, you may not have a solid understanding of this common legal tool. The word “lien,” pronounced as lean, means that a party has an interest in a property due to the obligation of the property owner to perform an action, make a payment, or settle a debt. A lien is a matter of public record and appears whenever anyone runs a title search on the property. There are several different types of liens across the country, each serving a different purpose depending on the location, industry, and context. In this blog post, the Northwest Lien team takes a step back to explain the various types of liens in Oregon specifically.
A preliminary example to wrap your head around the concept of liens? When a taxpayer gets behind on payment, the Internal Revenue Service (IRS) will place a lien on a piece of property the taxpayer owns, forcing the property to be put on the market. Once the property has sold, the IRS will receive the funds they’re owed first to ensure the taxpayer’s debt is settled; the property owner would receive the rest of the proceeds after the party that filed the lien receives payment. This type of lien, known as a tax lien, is just one common example of a lien in Oregon and other states across the US.
Each lien falls into both a category and a type. The types of liens in Oregon include general or specific, and voluntary or involuntary. When a person has a general lien filed against them, it attaches to their combined assets and not a specific type of property. Assets can include checking and savings account balances, real estate holdings, a vehicle, and other valuables.
Liens in the specific category include those attached to a defined asset. When someone borrows a large amount of money, for example, the lender may require him or her to offer collateral to secure the loan. That means if you pledged your vehicle as collateral on a loan, the lender could take possession of it if you fall behind on payments or default on the loan entirely. Unlike a general lien open to all assets, holders of a specific lien can only take ownership of one item.
The other distinction with types of liens in Oregon is whether they are voluntary or involuntary. While most people assume they would never voluntarily agree to a lien, that is what they do when obtaining a mortgage loan. You sign paperwork at a real estate closing that you agree to the lender placing a lien on the property if you stop making payments. Involuntary liens are more common, however, and often involve a mechanic’s lien (our personal favorite kind of lien) or a judgment lien. For reference, a mechanic’s lien in Oregon is also sometimes called a construction lien … but we’ll get to that.
We mentioned the example of the IRS placing a lien against commercial or residential property for non-payment of taxes, and also mentioned that this was an example of a tax lien at work. A tax lien is an involuntary general lien that prioritizes the IRS for payment above other creditors and the property owner when he or she sells personal or business property. The purpose of a tax lien is not to force the property into foreclosure but to ensure the IRS receives payment first at the time of sale.
A judgment lien is a claim upon property as a result of a lawsuit. When one party sues another in a lawsuit and wins, the judge may place a lien against the losing party’s property on behalf of the winning party. The person owing money in the lawsuit will have the opportunity to pay it first before having a lien placed on his or her property.
As mentioned above, a mortgage lien is a claim on a property that enables a bank/property owner to force the sale of the property if the homebuyer does not meet their mortgage payments. Mortgages fall under the definition of secured loans that automatically create a lien against the property if the borrower fails to meet the loan terms. The property itself acts as a form of collateral rather than the borrower offering another type of personal property to obtain the mortgage loan.
Finally — we saved the best for last! An Oregon mechanic’s lien, or Oregon construction lien, acts as a type of security for licensed general contractors and others in the construction industry. Under statutory rights laws in Oregon, a mechanic’s lien is both involuntary and specific. All 50 states have different variations of laws that allow contractors and suppliers in the construction industry the legal right to file a mechanic’s lien to force payment for services and supplies.
Oregon law provides you with the legal right to file a mechanic’s lien as a general contractor, subcontractor, materials supplier, or a party who provided another type of professional service related to the repair or construction of residential or commercial property.
Before you can file a mechanic’s lien in Oregon, you need to present the property owner with an Oregon Notice of Right to Lien. This does not necessarily mean you will follow through with placing a lien against the property. Taking this action simply preserves your right to file a construction lien in Oregon if you do not receive timely payment of your invoices.
If you’ve determined that a mechanic’s lien is the type of lien you need, then lucky you! That just so happens to be Northwest Lien’s area of expertise. Filing preliminary lien notices and a mechanic’s lien in Oregon takes time away from the many other tasks you must attend to as a construction worker. We invite you to contact Northwest Lien to learn more about our membership packages offering pre-filled lien forms, free title searches, assistance from a dedicated account manager, and much more. You work hard for your clients, and we’re here to work hard for you.