What is a mortgage lien?

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• A mortgage lien is a legal claim a lender has to a property until the borrower pays off their mortgage.
• Liens enable mortgage lenders to foreclose on borrower's home if they default on their mortgage.
• Mortgage liens are a type of voluntary lien, meaning the homeowner agreed to have it placed on their home.

On the surface, getting a mortgage looks a lot like getting any other type of loan: A mortgage lender gives you money to buy a house and you agree to pay it back over a certain period of time. If you aren't able to meet the terms of the loan, the lender can take your home as collateral for the money it lost.

But when you look at the process more closely, there's a bit more going on behind the scenes than you might think. To ensure it can recoup its losses in the event that a borrower defaults on their mortgage, the lender places a lien on the property being purchased.

Is a mortgage the same as a lien?

The word "mortgage" is usually used to refer to a loan that is used to buy a home. But in legal terms, a mortgage is an agreement between a lender and a borrower that allows the lender to foreclose on your home if you fail to repay your loan. A mortgage lien is what enables the lender to do this. 

"A lien is a legal claim or right to another person or entity's property until a debt is paid," says Kristina Morales, a mortgage loan officer and founder and CEO of Loanfully. "The property is used as collateral, and the lien on that property secures the debt."

How a mortgage lien works

Lending an individual hundreds of thousands of dollars or more to purchase a home is risky, so lenders need some assurance that they'll be able to get their money back if a borrower stops making their mortgage payments.

The lien gives lenders the legal right to get their money back by taking ownership of the home and selling it through the foreclosure process.

How mortgage liens impact your home

The lien on your home is a public record documenting that a debt is owed on the property.

"The mortgage lien provides public notice that the property cannot be sold with out the consent of the lienholders — which in the case of a mortgage lien, the lienholder is the lender," Morales says.

In general, mortgage borrowers won't need to think too much about the lien on their homes as long as they stay on top of their monthly payments. If you sell the home before the mortgage is fully paid off, you'll use the proceeds from the sale to pay the remainder of the mortgage. Once the mortgage debt is satisfied, the lender will remove its lien from the property.

Voluntary vs. involuntary liens

A mortgage lien is a type of voluntary lien. These are liens that the homeowner has agreed to have placed on their property.

Involuntary liens are ones that have been placed on a property without the homeowner agreeing to it ahead of time. These are typically the result of the homeowner failing to pay a debt. 

Other types of liens

Mortgage lenders aren't the only entity that can put a lien on a piece of property. Other common types of liens include:

• Tax liens: If you're delinquent on your income or property taxes, the federal, state, or local government can place a lien on your property.
• Mechanic's liens: A contractor can place a mechanic's lien on a home if they've completed work on it and were never paid in full.
• Judgment liens: If someone files a lawsuit against you and wins, they can file a judgment lien against your property to ensure they're paid what you owe them.
• Homeowners association liens: Your HOA has the ability to put a lien on your home if you don't pay your HOA fees.

Because these types of liens can be placed without the consent of the homeowner, they're considered involuntary liens.

Lien priority

When there are multiple liens on a piece of property, lien priority determines who gets their money first. Mortgage lenders typically want to be the first in line to get repaid.

"A lender who is loaning funds for the purchase of a property will want to ensure that there are no other liens ahead of them," Morales says. "In general, liens are in the order that they are filed — the 'first in time, first in right' rule."

So, if a contractor places a mechanic's lien on your house after your mortgage lender has placed its lien and the home is then sold, the contractor will only get paid after the lender has been paid in full.

There is an exception the "first in time, first in right" rule of lien priority: tax liens. If you don't pay your taxes, the government's tax lien will take priority over all other liens, regardless of when they were placed.

"For this reason, many lenders require a borrower to maintain an escrow account so the lender can collect the property taxes each month and pay them directly to the county from that escrow account," Morales says. "This helps the lender protect its first position by ensuring that property taxes do not go delinquent."