What is the difference between a lien and a levy on someone’s property? A lien is a cloud on a title, to be released once the homeowner completes repayment to a creditor. A levy is a legal seizure of the property.
Here’s how they work.
The term lien, meaning the right to hold an interest in someone else’s property until a debt is repaid, comes from the Latin ligament, meaning bond or tie. While the homeowner receives a notice of a lien, the lien attaches to the property itself. It stays with the property, not its owner; but in reality, homeowners pay off their debts so they can sell homes with marketable titles, or to be approved for refinancing.
A mortgage or deed of trust is a common example of a lien — a consensual lien. The homeowner agrees to it, through a loan contract.
A judgment lien, in contrast, is court-ordered. Courts order payments to people in cases involving debts, damages, or obligations — for example, to award spousal or child support after divorce. A judgment lien is certified in the courthouse, and submitted to the county recorder of deeds. The lien can apply to any of the debtor’s real estate, anywhere in the county — even property acquired later. Plus, the creditor can have a copy recorded in multiple counties, to potentially attach to more property.
Check the state-specific judgment lien law for information about how liens are attached, when and for how long they can be renewed, and when they expire.
A levy is the seizure or sale of the property to pay a debt. The term means to raise or collect, and originates in the word levée — French for raising. It’s based on a judgment lien, but it takes the key extra step of taking the property over. Levies stay on a property even if it is transferred to another person or a living trust. They cannot, however, attach to future properties the debtor may buy.
A creditor executes the judgment by using a writ of execution and having the debtor’s property sold through a county sheriff’s sale. The steps involve:
- The written request to the civil division of the county sheriff’s office, accompanied by the complete legal property description that appears on the deed, and the county fees, which can run upwards of $1,500.
- Proof of current ownership: a certified copy of the home’s warranty deed or quitclaim.
- Any mortgages must be paid off and released.
- An attorney should certify the property’s title certificate.
- The description is entered onto the sheriff’s sale schedule.
- A plainly visible copy of the court order and schedule are posted the physical property.
The Charlotte County Sherriff’s Office [PDF] lists further requirements for real estate levies, which include, among other items:
- An original writ of execution, which the court clerk must sign and seal.
- The final judgment, recorded in the county.
- A judgment lien certificate issued by the state.
- All required notarized affidavits, including for any assignment of the judgment.
- An affidavit that the county tax records show the property is not shielded by homestead status from forced sale.
- Proof and affidavit of the levying party’s identity.
All included documentation must match the judgment. The party who requests the levy is responsible for paying the fees, doing all the research, and submitting all required paperwork.
Tax-Related Liens and Levies
The Internal Revenue Service can impose a federal lien and even carry out a levy of a taxpayer’s property to recoup the revenue it’s owed. Here again, a lien puts a cloud on title to secure debt, and a levy legally takes the property to satisfy the tax debt.
It starts, of course, when the owner doesn’t pay a tax bill. The IRS then notifies the owner of the balance, and warns of a possible Notice of Federal Tax Lien. Each lien document may list up to 15 tax debts [Internal Revenue Service PDF]. The homeowner may appeal, as the notice explains. If the IRS does issue a lien, it will attach to any property, owned or later acquired. As a federal tax debt, it may even survive a bankruptcy filing.
Remember that neglected tax liens can turn into levies. After the IRS seizes a house it will sell it, subtract administrative costs, and apply the net proceeds to the overdue taxes.
Generally, the IRS uses lien and levy notices not to take people’s properties, but to get taxpayers to pick up the phone and work out payment arrangements. Concerned you might have a lien from the IRS, or your state or local government? Check with the relevant tax office, or the recorder of deeds in which your home exists.
Getting Judgment Liens Resolved
The debtor has a creditor file a release of the lien in the county where the lien was recorded, after:
- The debtor pays off the debt.
- The debtor challenges the lien and obtains a court-ordered discharge.
- The debtor proves the lien was wrongly attached. (Using Michigan state law as an example, a homeowner may need to use the formal provision to cancel a lien which results from mistaken identity.)
When the debtor wants to sell the house, the entire lien must be resolved — or at least the homeowner should use the sale proceeds to obtain a partial release that’s enough free up the real estate being sold. The seller should offer accurate, full, and timely disclosure to the creditor on the home price and available equity. If the seller can pay off the whole judgment, the creditor must discharge the full lien promptly, or owe penalties. Meanwhile, the seller may file an affidavit and evidence of payment to the title company so the home sale can move on. Be sure the release is signed by the creditor (or a representative) and recorded.
Getting Tax Liens Released
The earlier a debtor calls the IRS (at 1-800-913-6050), the better. There are usually payment arrangements available to avert a lien or levy. If the lien already exists, the sooner it’s paid, the better. The debt itself must be paid, and so must the penalty, interest, and any additional charges, including the fees for the county recorder’s office that releases the lien.
Once it’s paid off, the government will release the lien within 30 days.
Ten years after the tax was assessed, the federal lien expires automatically, unless the IRS refiles the lien.
Protections for Homeowners
Levies are hard to place on homes, as they should be. They can be obstructed by some hefty bureaucratic provisions:
- Homestead status. If the state has a homestead exemption, any creditor who seeks to foreclose on someone’s primary residence must pay the homeowner an amount from the sale proceeds. This occurs so homeowners don’t lose all of their home equity.
- Tenancies by the entirety. If a marital home is vested as tenants by the entirety, liens aren’t allowed — unless the judgment is against both co-owners.
- Administration and sale costs. Foreclosure sales require published notice and the sheriff’s fees to host the sale. The creditor needs to pay the title company, the appraiser, and the recorder of deeds.
After the creditor jumps through the official hoops, the debtor might be able to scuttle the sale by filing for bankruptcy. State law varies, and in some places may give debtors time to redeem judicially foreclosed houses for the amount the buyer paid plus interest. In those states, a certificate of redemption voids the sale to the new buyer.
Each Situation Has a Unique Set of Facts
To learn more about dealing with notices of liens or levies, consider talking to your tax expert, a real estate attorney, or a legal aid nonprofit focused on housing or tax issues in your area. The best combination of responses will be unique to each homeowner.
Photo credit: Morning Brew, via Unsplash.