A lien is an encumbrance on property that attaches in favor of a creditor to whom the property owner owes money. The creditor must remove the lien once the underlying obligation is paid in full. The method of removal will depend on the type of lien and how it was filed.
TL;DR (Too Long; Didn't Read)
A lien must be removed from property once the debt underlying the lien is paid in full. The process for removing a lien depends on the type of collateral and the type of lien, which can include mortgages, judgment liens, UCC liens and car liens.
What Is a Lien?
A lien is a type of security interest a creditor can take in property to secure a debt obligation. A consensual lien is a lien that the borrower agrees to give in exchange for a loan such as a home mortgage or a car loan. A non-consensual lien is a lien that attaches without the borrower's consent and can include tax liens and judgment liens.
When the debt is paid off, the creditor is obligated to remove the lien from the property.
Removing a Mortgage Lien
A mortgage is a type of lien that is placed on real estate. Anyone who borrows money to buy a new house or refinance an existing home loan will give the lender a mortgage on the house. The mortgage will be released when the loan is fully paid.
A lender can remove a mortgage by filing a document called a Satisfaction of Mortgage or a Discharge of Mortgage (the laws of the state may vary). The satisfaction or discharge should be recorded in the county where the property sits, the same as the original mortgage. Once the document is recorded, the lien is extinguished.
Removing a Judgment Lien
A judgment, or judicial, lien is a lien that attaches to property when the owner is sued and a money judgment is entered against the owner. Many states allow judicial liens, although how they are fixed depends on the state's laws. Once a judgment lien is attached, it remains on the property until removed.
If the obligation is paid, the judgment creditor should file a satisfaction of judgment or similar document as set forth in the court rules of that state or county. Judgment debtors may also be able to remove a judgment lien by filing a bankruptcy case, but their success will depend on how much the property is worth and whether there are other liens attached to it.
Removing a Lien on a Car Title
A lien on a motor vehicle is evidenced by a notation on the vehicle's title indicating that there is a lien. The title will state the name of the lender and sometimes an address. Once the car is paid off, the lien can be removed. Each state's process for doing so may differ, but the gist of the process is that a new title must be issued showing that there isn't a lien.
In New York, for example, the borrower must apply for a duplicate title and include a request for a lien release on the application and a letter from the lender indicating that the lien has been satisfied. The borrower must also provide the original title showing the lien and pay a $20 fee.
Removing a UCC Lien
A consensual lien on personal property that is not a motor vehicle is perfected by filing a UCC-1 Financing Statement as set forth in the Uniform Commercial Code. Every state has adopted some version of the UCC, and if a borrower gives a lender a lien on assets like equipment, inventory, accounts or furniture, the lender will file a UCC-1 Financing Statement, usually shortened to "UCC," with the state where the borrower is located.
When the loan is paid in full, the lender must file a Form UCC-3, which is used to revise a UCC, either to amend, continue or terminate. The box for Termination must be checked. Once the termination statement is filed, the lien is extinguished.
- The Washington Post: The Paperwork You Should Receive When Your Mortgage has been Paid in Full
- Nolo: What is a Judgment Lien?
- Cornell University Law School: Uniform Commercial Code Article 9, Section 9-513
- Wolters Kluwer: What You Need to Know About Common Uniform Commercial Code (UCC) Forms
- ContractsProf Blog: Uniform Commercial Code: 2016 Legislative Agenda
- Wasson Thornhill: Removing a Judgment Lien from the Title to Your Home
- New York Department of Motor Vehicles: How to Remove a Lien from a Title Certificate