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What Is a Property Lien? - YouTube
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today we're talking about property liens
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what are they and how do they work let's
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dive into it here we are our very first
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rental property
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hey everyone I'm Clayton Morris I'm
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Natali Morris and this is the show where
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we help you build financial intelligence
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so you can build financial freedom we've
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done it with buy-and-hold real estate so
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we teach you how to buy and hold real
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estate for the rest of your life and
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with that comes liens liens on
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properties right we've had our fair
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share of these we have and there are
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good liens
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and there are bad liens like a good
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witch and a bad witch right and so you
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just need to understand what a lien is
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and what your rights are as the property
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owner right at the highest level a lien
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is simply someone's legal right to a
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possession of yours absolutely right so
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a lien is basically a list that is
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recorded with the county where the
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property is of who is owed on this
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property now a an example of a good lien
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right usually is a mortgage or a home
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equity line of credit or something like
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that from the bank right you didn't put
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all the money into buying this you ask
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the bank for help the bank is recorded
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usually in first position as a lien
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holder right that means if the property
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is sold and they don't get paid back
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because you maybe have defaulted on the
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loan or something they are in first
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position to get their money paid back
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now the mortgage holder is almost always
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in first position but will get knocked
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out by the city or the county so if for
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some reason you have delinquent taxes
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and the city has to sell your property
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the city or the county will always get
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paid first that's in most municipalities
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there may be a few around the country
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where that's not the case but for the
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most part mortgage holders are in first
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position and get knocked out by any tax
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liens ok the city always puts itself
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first so that's that's a good that's a
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goodly right and it's also a level as a
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blanket of security a lien as a blanket
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of security so a lot of times we've
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worked with different hard money lenders
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private money lenders that will put
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against certain assets and properties as
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a security measure
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yeah themselves right right so it's just
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a protection it's a level of protection
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or sometimes a little loan to somebody
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as a private lender and then that loan
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say from my IRA or from my bank account
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right gets recorded at the county so if
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someone goes and tries to sell the
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property and doesn't tell me it's not
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possible that I don't get paid back
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because the title company is gonna see
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it as a list of liens on that property
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and the title company legally has to pay
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it right now there's been times when I
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started in the wholesaling business and
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I was picking up properties from
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motivated sellers that were trying to
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sell this piece of dump property right
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they would tell me one thing about the
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property that you know if they could
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just make $50,000 then they'll still
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sell it to me great so I go in maybe
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make a contract with that person for
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$50,000 and then once we start doing the
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title search at the title company you
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know Kathy would start doing the the
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title search she'd say this house has
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like six liens on it right there's a
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water bill lien from the city there's an
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electric lien there's all sorts of other
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liens on this property there's a tax
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lien of like $7,000 and so I would go
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back to the seller and say look yes you
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wanted $50,000 but there's 12 thousand
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dollars worth of so you're gonna walk
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away with thirty eight thousand dollars
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in profit not fifty because you owe all
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these liens right and so those are
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examples of bad leaves right so some
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liens that you that are undesirable
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right that you might find attached to a
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property yes utility bills if the
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utility company has been delivering
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power or electricity those are the same
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things
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I meant water or electricity or strength
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what do you mean someone's delivering
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this to
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I don't know well like power and
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electricity are not necessarily the same
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thing cuz you could have gas but you
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know what I mean right we're splitting
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hairs here if they've been delivering
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these utilities to your property and you
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have not been paying them they have the
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right to record a lien at the county a
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lot of times they do let's say now the
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more common types of liens that I think
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real estate investors are afraid of are
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the contractor oh boy alright so let's
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talk about the contractor liens these
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have bit us in the but a number of times
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we do a lot of properties on a regular
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basis we've had we've had bad partners
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in the past many of you know the story
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from a number of years ago or had to
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deal with a pretty terrible partner that
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defrauded us and so because of that
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we've been through we've been raked over
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the coals as they say we have seen this
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happen right now this was created as an
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option for let's say my name is Tywin
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and I am a general contractor I went I
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went yes I win Lannister a Lannister
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always pays its debts which I guess is
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not a good example we shouldn't use
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House Lannister because they wouldn't
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have liens okay but no my name is Tyler
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how about a nicer gentler fantasy
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character how about Baggins Bilbo
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Baggins where the where the where the
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Baggins fan okay we're hobbits so I run
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a shoestring business of contractors and
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I do rehabs on single-family homes and I
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live pretty much jobbed job right I
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finish one job I pay off that Lois bill
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and then I go to the next job I am NOT
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rolling in cash that I can just roll
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over a job to job and then I go and do a
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job and my employer the person who the
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investor who owns that house stiffs me I
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don't get paid right I do not have a
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slush fund of money to sue that investor
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right I also may not have the
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wherewithal or the time to take them to
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small claims court the property liens
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developed as a way for the small
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contractor to have some kind of right in
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order to I mean threatened is not the
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right word but they yes they need some
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kind of leverage knowing that these
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people are by and large not the most
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powerful people in our country and they
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need some kind of rights to be able to
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get their money back for work that they
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have already put out right and so they
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can say to you I'm going to record this
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lien there is some burden of proof on
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them they have to be able to prove that
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they did that work I can't decide I
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don't like Clayton Morris so I'm gonna
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put a lien on his property and I have
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never worked on that property right that
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is absolutely not your right but the
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city will say to you can you prove what
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you did to this property you can say yes
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right and then the city lets you record
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this lien you as a property holder will
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get a notice from the city that Tywin
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Lannister has gone to record a lien
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against your property right and then
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it's on you to either settle the lien or
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you can take this person to court and
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fight it there are some resources for
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you and that's state to state it's
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different some states the liens are like
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ironclad you can't get out of them some
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states they will let you prove it it's
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it's different you have to speak to an
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attorney for this kind of thing or you
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could say doesn't bother me when I sell
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the property you'll get paid but right
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now I'm not doing anything you could do
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that right in most states you could you
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also though could be forced to sell the
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property if the contractor decides to
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enforce the lien in court so they can
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take you to court for it in which case
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the city would sell your property and
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then they get paid and that way too it
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just it really depends you need to know
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your rights well what about it affecting
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your credit and this is what we hear
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about you know if a mortgage company
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wants a default and they've got liens
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against you how long does that does it
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affect your credit as a state
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your credit um it really depends if you
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own the property in your personal name
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the utility bills are in your personal
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name absolutely this will correct affect
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your credit score if you own the
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property in an LLC and the utility
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company sends the bills to the LLC with
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the ein number to the LLC or some other
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kind of corporate structure it's
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possible that's not the case
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sometimes the utility company wants your
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personal Social Security number even
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though you have an LLC so that they can
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hold it against you again it really
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depends could a contractor lien do that
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most likely not they don't have your
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personal name and social security number
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to file that debt against you because a
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lien is not attached especially a
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contractor lien it's not attached to you
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as a person as a debt it's attached to
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the house it's the house that has this
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like bad credit score now right it's not
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really you know but if you have a
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mortgage which is a lien and then of
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course you're going through all the
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paperwork of a mortgage but if you
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fulfilled a mortgage that actually will
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remain on your credit for up to seven
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years because as people run your credit
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report to see your history your
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financial history they're gonna see that
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oh we know Clinton have this mortgage a
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number of years ago he fulfilled it paid
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it off he didn't foreclose didn't go
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through of a default judgment against
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him or anything else so that will stay
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on there for up to seven years and if
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you actually have a lien that goes
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unpaid that can stay on there for up to
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ten years so just what's the moral of
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this story pay your bills right for one
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pay off your contractors and your
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utility bills and your mortgage company
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you made an agreement to pay them you
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should pay them but what if you have a
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dispute with a contractor like the movie
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overboard where she went to the closet
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made of cedar and he makes it of oak and
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so she's like well I'm not gonna pay you
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right I don't know if you could put a
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lien on a yacht but let's pretend that
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it was in the house right and the
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contractor put this money out and now
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you're disputing it and the contractor
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can put a
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on the house even though you've disputed
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it right better to somehow resolve those
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peacefully than have the lien now some
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contractor liens do expire in some
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municipalities like you haven't got
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around to it
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not not expire I'm sorry they're right
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to enforce that lien expires like I can
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put a lien on a house one year in
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January and I have a year to force this
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property and enforce it in court
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otherwise it just stays there unpaid and
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I can't force them to sell it
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so you need to know what your rights are
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in your city if you're investing
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somewhere just look it up what am i
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rights if someone decides to lien my
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house it's a good idea to have it it's a
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good idea to have like someone at your
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fingertips that you couldn't call if you
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have something unlucky you know what all
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of us get unlucky at some point and have
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to deal with things we didn't anticipate
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but the things like water bills and
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electricity bills
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that you know you should be able to
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carry you're a big big boy girl and as
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we wrap this up it's important that if
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you have satisfied a lead I think this
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is important is to get a letter of
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satisfaction of that the improving that
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it's been paid off so if you know you're
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making your last mortgage payment
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wouldn't you like to get a letter from
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the bank saying your mortgage has been
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satisfied the chalene is now removed or
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even with the contractor you know the
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place to lean over a dispute of a fence
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that they were building on your property
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and it's been fulfilled make sure you
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get in writing from them that it has
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been satisfied and it is it has been
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removed so you have that paperwork as
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well so there you go that's all about
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liens today not terribly sexy but
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incredibly important when it comes to
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real estate investing I'll go out there
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take action become a real estate
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investor we believe it's the number one
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way to build wealth even if you have to
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deal with liens from time to time I'll
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see you next time
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