Liens as Encumbrances Quiz
66 Questions
2 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary function of a lien?

  • To establish a claim against property as collateral for a debt (correct)
  • To erase any existing debt
  • To transfer ownership of property to the borrower
  • To enhance the value of the property

    • Which statement accurately describes how liens affect property sales?

  • A property with a lien cannot be sold unless the lien is paid off by closing (correct)
  • Buyers are always willing to purchase properties with liens
  • Liens do not impact the ability to sell a property
  • Liens enhance the saleability of a property

    • What distinguishes a voluntary lien from an involuntary lien?

  • Involuntary liens are always preferred by creditors
  • There are no legal implications for voluntary liens
  • Voluntary liens are created with the consent of the property owner (correct)
  • Voluntary liens are initiated without any agreement

    • Which type of lien is a mortgage classified as?

    <p>Voluntary lien</p> Signup and view all the answers

    What is a key example of an involuntary lien?

    <p>Real estate tax lien</p> Signup and view all the answers

    What is the difference between a general lien and a specific lien?

    <p>Specific liens apply to certain property, while general liens cover both real estate and personal property</p> Signup and view all the answers

    What happens to a property with a lien if the borrower defaults?

    <p>The lender can liquidate the property to recover the debt</p> Signup and view all the answers

    Which of the following statements is true regarding liens in real estate?

    <p>Only voluntary liens can lead to foreclosure</p> Signup and view all the answers

    What happens if a taxpayer does not respond within 10 days of receiving a Notice and Demand for Payment from the IRS?

    <p>The IRS may create a lien for the amount of the debt.</p> Signup and view all the answers

    What is a mortgage lien primarily secured by?

    <p>The home itself that is purchased.</p> Signup and view all the answers

    Who is the mortgagor in a mortgage agreement?

    <p>The borrower who takes out a loan.</p> Signup and view all the answers

    What is the purpose of a mechanic's lien?

    <p>To secure payment for labor or materials provided.</p> Signup and view all the answers

    Which statement is true about mechanic's liens?

    <p>They are based on the enhancement of value theory.</p> Signup and view all the answers

    In Pennsylvania, who is NOT eligible to file a mechanic's lien?

    <p>Third-tier subcontractors.</p> Signup and view all the answers

    What is the main difference between a vendor's lien and a mortgage?

    <p>A vendor's lien cannot be foreclosed on by the seller.</p> Signup and view all the answers

    What must a person file within a month of the lien being recorded?

    <p>A notice of filing to the property owner.</p> Signup and view all the answers

    How long does a person have to enforce a mechanic's lien after filing?

    <p>Two years.</p> Signup and view all the answers

    In the context of tax, what can homeowners and investors do to reduce federal income tax?

    <p>Utilize tax shelters.</p> Signup and view all the answers

    What is required for a valid mechanic's lien under Pennsylvania law?

    <p>Direct communication with the property owner.</p> Signup and view all the answers

    What is typically the first step taken by the IRS upon assessing a taxpayer’s liability?

    <p>Issuing a Notice and Demand for Payment.</p> Signup and view all the answers

    What form of tax lien ranks in priority below a mortgage lien?

    <p>Federal tax liens.</p> Signup and view all the answers

    What are the two key terms defined in a mortgage agreement?

    <p>Mortgagor and Mortgagee.</p> Signup and view all the answers

    Which of the following improvements can be funded by special assessments?

    <p>Curb improvements</p> Signup and view all the answers

    How are costs for a new sidewalk typically divided among property owners?

    <p>Based on the length of sidewalk built on each property</p> Signup and view all the answers

    What kind of lien allows a commercial broker to recoup a commission if the client does not pay?

    <p>Commercial broker lien</p> Signup and view all the answers

    What determines the order of payment when a property is sold at a foreclosure auction?

    <p>The priority of liens</p> Signup and view all the answers

    What is a vendee's lien intended to ensure for the buyer?

    <p>The repayment of what the buyer has paid.</p> Signup and view all the answers

    What is the importance of lien priority?

    <p>It decides the payment order to lien-holders if foreclosure occurs.</p> Signup and view all the answers

    Which type of lien is considered 'first place' when payments are made?

    <p>Ad valorem taxes and special assessments</p> Signup and view all the answers

    Under what condition is a vendee's lien unnecessary?

    <p>The seller carries the full amount of the loan.</p> Signup and view all the answers

    What is the nature of a bail bond lien?

    <p>An involuntary lien that is enforced by the sheriff.</p> Signup and view all the answers

    What characterizes a junior lien?

    <p>It is recorded after a senior lien and is therefore lower in priority.</p> Signup and view all the answers

    What is a subordination agreement?

    <p>A contract that allows a later-recorded mortgage to have priority.</p> Signup and view all the answers

    What happens if a property owner does not pay their municipal utility bills?

    <p>A municipal utility lien can be placed on their property.</p> Signup and view all the answers

    When might a homeowner need a subordination agreement?

    <p>When refinancing a mortgage to maintain priority.</p> Signup and view all the answers

    What can be the first step taken by tax authorities if property taxes are not paid?

    <p>They will send delinquency notices.</p> Signup and view all the answers

    What are ad valorem taxes based on?

    <p>The assessed value of real estate.</p> Signup and view all the answers

    Which of the following statements is true about general liens?

    <p>They can be transferred to other acceptable collateral.</p> Signup and view all the answers

    How can a seller clear liens from their property before closing?

    <p>By convincing the lender to release the lien.</p> Signup and view all the answers

    Why might a property owner lose ownership of their property?

    <p>If they fail to pay their taxes.</p> Signup and view all the answers

    What distinguishes an IRS tax lien from a property tax lien?

    <p>An IRS tax lien is a general lien affecting all properties owned by the individual.</p> Signup and view all the answers

    What happens if lien priority is not established during a foreclosure?

    <p>Liens without priority may not get paid if proceeds are insufficient.</p> Signup and view all the answers

    What is a special assessment district?

    <p>A defined area where public improvement costs are charged.</p> Signup and view all the answers

    What distinguishes a domestic support lien?

    <p>It targets individuals who owe child support.</p> Signup and view all the answers

    What occurs to a property and its liens during a transfer of ownership?

    <p>Liens stay with the property.</p> Signup and view all the answers

    What is the primary purpose of special assessments?

    <p>To fund public improvements that benefit specific properties.</p> Signup and view all the answers

    What happens if a special assessment is unpaid?

    <p>A tax lien may be placed on the property.</p> Signup and view all the answers

    What can lead to a higher interest rate for junior liens?

    <p>Lower priority in lien settlement</p> Signup and view all the answers

    How does the county tax assessor determine property value?

    <p>By calculating the value through various assessments.</p> Signup and view all the answers

    What is a contract for deed?

    <p>A sale agreement where the deed is transferred later.</p> Signup and view all the answers

    What can happen if a property owner continuously neglects to pay taxes?

    <p>They may face foreclosure on their property.</p> Signup and view all the answers

    What does 'ad valorem' mean in Latin?

    <p>According to value.</p> Signup and view all the answers

    What is the primary characteristic of a judgment lien?

    <p>It is a general, involuntary lien.</p> Signup and view all the answers

    What action can a court take if a debtor does not pay a judgment?

    <p>Issue a writ of execution.</p> Signup and view all the answers

    What is a writ of attachment used for?

    <p>To avoid selling property pending resolution of a lawsuit.</p> Signup and view all the answers

    Which type of lien provides notice of a pending lawsuit on property?

    <p>Lis pendens.</p> Signup and view all the answers

    Which of the following properties is typically exempt from an attachment lien?

    <p>Tools used for trade or business.</p> Signup and view all the answers

    How long is a judgment lien valid before it needs to be renewed?

    <p>10 years.</p> Signup and view all the answers

    How do estate taxes impact the distribution of a deceased person's assets?

    <p>They must be paid before any inheritances are distributed.</p> Signup and view all the answers

    What happens if a taxpayer does not pay their IRS taxes?

    <p>The IRS may place a federal tax lien against their property.</p> Signup and view all the answers

    What is the purpose of a surety bond in obtaining a writ of attachment?

    <p>To ensure compensation for any losses to the debtor.</p> Signup and view all the answers

    A confession of judgment leads to what type of lien?

    <p>Judgment lien.</p> Signup and view all the answers

    Which of the following is considered a statutory lien?

    <p>Tax lien.</p> Signup and view all the answers

    Which of these is NOT an example of exempt property from attachment liens?

    <p>Luxury watches.</p> Signup and view all the answers

    Which lien type is specifically used when property is needed to satisfy a deceased person’s debts?

    <p>Estate lien.</p> Signup and view all the answers

    What is a key requirement for a judgment lien to be filed in multiple counties?

    <p>The creditor must obtain a court certificate.</p> Signup and view all the answers

    Study Notes

    Liens as Encumbrances

    • A lien is a creditor's claim against property (real or personal) used as collateral by a debtor.
    • Liens are considered encumbrances because they affect the title to the property.
    • Some liens allow the creditor to foreclose on the property if the debtor defaults. This foreclosure process can be immediate or involve a lawsuit.
    • Liens significantly impact property title, affecting the sales process.

    How Liens Affect a Sale

    • Real estate liens attach to a specific property.
    • The property owner must either pay off the lien before closing or the buyer must accept the lien.

    Voluntary and Involuntary Liens

    • Voluntary liens are created with the property owner's consent.
    • A mortgage is a common example of a voluntary lien. It involves a loan for property purchase with the condition of creditor taking ownership if borrower defaults.
    • Involuntary liens arise through legal action without the owner's consent.
    • Example involuntary liens are tax liens and judgment liens.

    General and Specific Liens

    • General liens can apply to a person's real and personal property.
    • Specific liens apply only to a particular piece of property

    General Liens

    • Judgment liens: Result from court judgments, applying to both real and personal property. They are held against the loser of a lawsuit up to 10 years or longer if renewed.
    • Estate and inheritance tax liens: Apply to assets of deceased persons.
    • IRS tax liens: For unpaid federal income taxes, and apply to all property owned.
    • Deceased person's debt: Liens placed on the assets of a deceased person to cover their debts.

    Execution Liens

    • A writ of execution is a court order to seize and sell a debtor's property to satisfy a judgment debt.
    • This is an involuntary lien.

    Attachment Liens

    • An attachment lien is placed on property to secure a potential judgment in a lawsuit.
    • The plaintiff must post a surety bond or deposit to cover potential losses for the defendant.
    • Attaches to all property except homestead.

    Lis Pendens Notice

    • A lis pendens is a public record notice that a lawsuit concerning a property is pending.
    • It warns potential buyers of a possible claim against the property.

    Exempt Property

    • Some property is exempt from attachment liens. Exemptions vary by state but often include tools, Social Security benefits, basic household items, and certain wages.

    Tax Liens

    • Tax liens are imposed by government entities for unpaid taxes (statutory).
    • Real estate professionals should refer clients to tax advisors for specific tax issues.

    Estate and Inheritance Taxes

    • Estate taxes apply to assets left by a deceased person.
    • Deductible expenses from the gross estate value include debt, funeral costs, state death taxes, and charitable giving.

    Mortgage Liens

    • Mortgages are common voluntary specific liens.
    • Lenders prioritize mortgage liens (typically the first mortgage) over other liens except tax liens.

    Mechanic's Liens

    • Mechanic's liens are involuntary, specific liens for unpaid labor or materials for property improvement.
    • They are based on the enhancement of value theory—the idea that the property’s value increased due to the labor or materials.

    Vendor's and Vendee's Liens

    • A vendor's lien applies when a buyer doesn't pay the full purchase price.
    • Vendee's liens protect buyers when sellers fail to transfer title.

    Bail Bond Liens

    • Bail bonds can be secured by real estate if owners are accused of crimes.

    Municipal Utility Liens

    • Municipalities can place liens on properties for unpaid utility bills.

    Ad Valorem Taxes (Property Taxes)

    • Ad valorem taxes are based on the assessed value of the property; they are a specific, involuntary, statutory lien.
    • Taxing authorities impose these locally.

    Special Assessments

    • Special assessments are taxes for public improvements benefiting the property.
    • They can be voluntary or involuntary.
    • Assessments are statutory and specific and applied to the affected properties.

    Priority of Liens

    • Lien priority determines the order of payment if a property is foreclosed.
    • Generally, liens are prioritized by date of recording, but tax liens often have higher priority.

    Senior and Junior Liens

    • Senior liens have higher priority than junior liens.

    Subordination Agreements

    • Subordination agreements change the priority of liens, allowing a later lien to have higher priority.

    Terminating Liens

    • Liens can be cleared by paying the debt, transferring a lien to alternate collateral, or having them nullified with a property sale (or other relevant actions).

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    Test your knowledge on liens and their impact on property sales. This quiz covers both voluntary and involuntary liens, their effects on property title, and the foreclosure process. Understand how these claims affect real estate transactions.

    More Like This

    Types of Liens and Mechanic's Liens
    12 questions

    Types of Liens and Mechanic's Liens

    FavorableFermat avatar
    FavorableFermat
    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser