A lien on an NYC property is an individual’s, a government department’s, or someone else’s legal claim on a property for some unpaid debt that the property owner may have. Unless liens on a property are settled, it can be very difficult for the property owner to sell it.
In order to understand liens better, let’s go over some of the most common liens on a property that you might come across in NYC.
Different Types Of Liens On Properties
There are quite a few different types of liens that can be on an NYC property. While both buyers and sellers need to know about liens on a property, the sellers are usually responsible (as property owners) for settling these liens.
Mortgage Lien: When you buy a property with a mortgage, that property is collateral, and the mortgage lender has a legal right (a lien) on the property. They can take over the property and sell it if you don’t pay your mortgage. This is a voluntary lien that you, the property buyer/owner, agree to. In a mortgage lien, the mortgage lender is called the “lienholder,” or the entity that holds the lien, the claim on your property.
Home Equity/Second Mortgage Lien: Another consensual/voluntary lien is when you take out a second mortgage on your property or a home equity loan for renovations (or something else). Unless you pay off the full loan, a lien will stay on your property.
Contractor Lien: If you hire a contractor to work on or improve your property (townhouse or an apartment) and you don’t fully pay them for the work they have done, they can put a lien on the property for the payment you owe them. A subcontractor can also file a lien against contractors for payment (then it might be called a mechanic’s lien), but you might be able to get it removed from your property. A contractor’s lien can go beyond your apartment and impact the whole building, which can affect your relationships with the building management.
Property Tax Liens: If you don’t pay your property taxes or your water and sewerage bill, the Department of Finance (DOF) can convert these unpaid taxes (and charges) into a tax lien that is associated with your property. The DOF will then sell this tax to qualified buyers in a lien sale/auction. This is bad for property owners because it adds to the original sum they already have to pay, so it’s a good idea to ensure that there are no tax liens on your property. The government sends at least four notices before selling this lien.
Judgement Lien: If you lose a lawsuit and can’t pay the amount you owe, the winner of the lawsuit can file a lien against your property. Even if they can’t possess the property or force you to sell it and pay them, the lien offers them protection and surety that you will pay your due. A variation of a judgment lien would be a child support lien. If a noncustodial parent fails to pay child support, a lien may be placed against their property.
AEP Lien: They are usually mixed with a property tax lien, but it’s a good idea to understand what an AEP lien is. If a building in NYC is inspected by the Housing Preservation and Development (HPD) and the HPD finds out class B and class C violations, it will first issue a notice. If the building owner doesn’t fix these violations, the HPD will hire a contractor and get the issues resolved (under AEP: Alternative Enforcement Program) and send the bill to the property owner. If they don’t pay the bill, a tax lien will be placed on the property called the AEP lien. For reference, class B violations are hazardous: no smoke detector, bad lighting in the hallway, etc., and class C are immediately hazardous: no hot water, rodents, etc.
ERP Lien: ERP or Emergency Repair Program is very similar to AEP, but it’s limited to class C housing code violations. If a residential owner fails to resolve class C violations, the HPD may step in and hire contractors to do the repairs. The jobs done under ERP are usually more expensive than what the property owner could have gotten them done for if they took care of the violations themselves. The Department of Finance (DOF) will bill the property owner, and if the owner doesn’t pay, a tax lien will be filed against the property.
Common Charges Lien: Tenants of most condominium buildings pay common charges that cover the cost of facilities and maintenance that impact the whole condominium and all the tenants. They are similar to HOA and co-op fees. And if you fail to pay these common charges repeatedly, the management can file a common charges lien against your condo. And in the worst-case scenario, these liens can lead to property foreclosure.
NYC DOT Sidewalk Repair Lien: In some cases, the NYC Department of Transport (DOT) can repair a sidewalk (under their Expedited Sidewalk Repair Program) and bill the property owner. While the DOT doesn’t charge for all repairs, if they do send you the bill, you will have 90 days to pay it. Otherwise, the city will place a lien on your property.
What Can Buyers And Sellers (Property Owners) Do About These Liens?
Liens are problematic for both buyers and sellers, albeit in different ways.
What Do Buyers Need To Understand About Liens
Most buyers learn about these liens when the title of the property is researched. It’s usually part of the due diligence your lawyer performs for you before the property is closed but can also be a part of title insurance research.
Unless it’s a tax lien, you might be able to buy a property with liens and can negotiate a lower price so you can pay the liens yourself. But it’s always a good idea to make the seller clear all the liens on the property and hand over a clean title to you. Whenever a lien is cleared, a release of lien document is issued by the lienholder, which can be used to clear the title of the property of that lien.
Some liens won’t directly affect your ability to buy a property but are still danger signals. AEP and ERP liens are examples of such liens. If you are buying an apartment building with active AEP and ERP liens, it may indicate a bad management team.
The Sellers Responsibility When It Comes To Liens
Ideally, a seller is responsible for handing over a property with a clean title to the buyer. That includes getting rid of all the liens attached to the property. There are a few ways you can do that:
- You can pay off the lien in full. It will usually come with several additional fees and interest (grown over time), but it’s usually the most straightforward and fastest way to get rid of the lien.
- Settle the lien with the lien holder. You can convince the lien holder to drop the lien for a bit less than the full payment you owe them. They might agree to it, but only if they are desperate enough to settle for a smaller upfront payment instead of waiting for a time when you have to pay your full due.
- Dispute the lien in court. If you have proper legal grounds to fight a lien and can prove that it was placed on your property without good reason, you might be able to get it removed through a court order. But if you don’t have a strong case, you might end up paying more to the lienholder (including the legal fees they would have paid to fight the case you started).