A lien is a legal claim against a property that secures the repayment of a debt or other obligation. A lien does not give the creditor ownership of the home. Instead, it gives the creditor the right to be repaid from the property’s value if the debt isn’t satisfied. In most home sales and refinances, liens must be paid, released, discharged, or otherwise properly resolved before clear, marketable title can be transferred.

First liens and second liens

When you take out a mortgage, the lender records a mortgage lien on the home. This is usually the first lien, meaning it generally has first priority to be repaid if the home is sold or refinanced.

Homes can also have second liens — additional debts secured by the property, recorded after the first lien. Common examples include a home equity line of credit (HELOC), a second mortgage, or a home equity loan. In New Hampshire, down-payment assistance from NH Housing is typically structured as a separate loan secured by a second mortgage, which is a lien on the property.

Lien priority isn’t always simple, though. Certain tax liens, mechanic’s liens, condominium liens, judgments, and other claims can carry special priority rules under state or federal law. The closing attorney or title company determines the actual priority of the liens on a specific property.

Other types of liens

A lien can also arise if money is owed to a creditor for reasons unrelated to a purchase mortgage:

  • Mechanic’s lien – A contractor, subcontractor, or material supplier may file a lien if labor, professional services, or materials were provided and not paid for. In New Hampshire, mechanic’s-lien rights and deadlines are governed by RSA Chapter 447.
  • Property tax lien – A town or city can place a tax lien when property taxes go unpaid. New Hampshire’s municipal tax-lien process is set out in RSA Chapter 80 and can eventually lead to a tax deed if taxes remain unpaid.
  • Federal tax lien – The IRS can file a federal tax lien when a homeowner owes unpaid federal taxes. It can be paid from sale or refinance proceeds when there’s enough equity; when there isn’t, the seller may need to request a discharge of the lien from the IRS before closing.
  • Judgment liens and other claims – Court judgments, condominium fees and special assessments, and claims tied to divorce, estate, or bankruptcy proceedings can also attach to a property.

Subordination

Subordination allows an existing lien to keep its place on the property while agreeing to move behind a new lien in priority — most often used when refinancing a first mortgage while keeping a HELOC or second mortgage open. Both the new lender and the existing lienholder have to agree to the arrangement. If the existing lienholder won’t subordinate, that lien may need to be paid off and closed before the refinance can proceed.

Release and discharge of lien

A release or discharge of lien is the document confirming a lien has been satisfied and no longer affects the property. When recording is required, it’s typically recorded at the county registry of deeds where the property is located. Until that release or discharge is recorded, the lien can continue to show up in public records and cause problems at a future sale or refinance — even if it was paid off years earlier.

When there isn’t enough equity to pay off the liens

Sometimes the expected sale proceeds won’t cover all the liens, taxes, commissions, and closing costs on a property. In that situation, a seller may need to bring money to closing, negotiate a settlement or partial release with a creditor, or — if a mortgage lender is being asked to accept less than what’s owed — pursue a short sale, which requires lender approval.

Can closing happen before a lien is released?

Sometimes. Depending on the requirements of the closing attorney, title company, buyer’s lender, and title insurer, a closing may be able to proceed with acceptable payoff documentation, proof of payment, an indemnification agreement, or an escrow holdback, with the formal discharge recorded shortly after closing. In other cases, the lien must be released before closing can happen at all.

Liens recorded in error

Occasionally a lien shows up in a title search that doesn’t actually belong to the seller or the property — the result of a common name, a recording error, or a debt that was already paid but never properly discharged. The closing attorney investigates whether the lien is valid and attaches to the seller before it needs to be resolved.

This is general information about liens in New Hampshire real estate transactions and isn’t legal advice. For questions about how a specific lien may affect a sale, refinance, or purchase, contact Renee Duval, NMLS #97967, at Bookend Lending LLC, or consult a qualified New Hampshire real estate attorney.

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