What Is an Equitable Lien?

An equitable lien is a form of equitable restitution.
••• Real Estate image by Stephen VanHorn from Fotolia.com

An equitable lien is one of several equitable remedies which force one party to relinquish a benefit he has received wrongfully (meaning, at another party's expense). To be what is called an "equitable remedy," an equitable lien must be obtained from a court of equity. Those with questions about equitable liens should seek legal assistance.

Equitable Restitution

Restitution, also known as liability in unjust enrichment, is an appropriate remedy when the defendant has received a benefit at the expense of the plaintiff, and it would offend justice to allow the defendant to keep that benefit. Equitable restitution is a form of restitution available in courts of equity when the plaintiff has no legal remedy for his injury. There are three typical forms of equitable restitution: a constructive trust, an equitable lien or an accounting.

Equitable Lien

A lien is a legal instrument which represents a claim made to property by someone besides the owner. This claim generally involves an unpaid debt of some sort. Liens must be settled before the owner can sell the property. Courts place equitable liens on property when the defendant appropriated that property wrongfully (through undue influence, fraud, threats, etc.). In the cases where a defendant improved property that he rightfully owned by using property that he wrongfully obtained, courts will often place an equitable lien on the rightfully owned property as well. The equitable lien is designed to make sure the defendant can't keep his wrongful gains, and must make the plaintiff whole for his loss. Should the defendant fail to pay, the plaintiff may obtain a deficiency judgment against the portion of the property commensurate with the amount of the equitable lien.

Read More: The Difference Between a Constructive Trust and an Equitable Lien

Example: Verity

In the case of Verity v. Verity, a husband and wife were broke when they got married. The husband owned a farm worth very little. The wife helped the husband on his farm, and the money they acquired from the farm helped them buy more property. However, the husband quietly put the new property in his name only. The wife paid the taxes and insurance on the new property. After their divorce, the wife brought suit for her share of the property, and the court determined that the defendant had been unjustly enriched by all of the money which the wife had expended to protect and improve property that the husband owned solely. Therefore, the court put an equitable lien on the property in the husband's name for the amount the wife had expended.

Tracing Requirement

Before a court will award an equitable lien on property, the plaintiff must be able to show direct evidence that his money or effort contributed to the property. This requirement is known as the "tracing requirement." For instance, in the above Verity case, the wife would have had to present the court with financial evidence (for instance, bank statements or copies of checks) that proved she had paid the taxes and insurance on the property.

Constructive Trust Distinguished

An equitable lien is often confused with a constructive trust, another equitable remedy. Both remedies result from a defendant's unjust enrichment at the expense of the plaintiff. However, a constructive trust is a trust, not a lien; imposition of the trust actually transfers the title of the property at issue from the defendant to the plaintiff. Courts will only award a constructive trust on property that has been wrongfully acquired, unlike an equitable lien, which also allows a remedy when wrongfully acquired property is used to enrich rightfully owned property.

Related Articles