Consensual, Judicial, & Statutory Liens

In this article, I will discuss the various ways in which a lien may attach to real property. I will only be discussing attachment to real property, not personal property. I intend to educate the reader as to the nature of a lien and its affects on Blackacre.

The legal dictionary defines lien as: any official claim or charge against property. In viewing this definition, focus should be attended to the word 'official'. For a claim or charge to constitute a lien, it must be official or substantiated. Many persons or entities may claim a lien on real property, especially during a debtor's bankruptcy proceedings, when, in fact, these claims are unsecured. As any creditor knows, if your claim against a debtor is unsecured, your payment from a bankrupt's estate will be pennies on the dollar, if not zero. For a lien to be official, it must materialize in one of three ways: 1) by consent; 2) by judicial determination; or 3) by statute. Hence the title of this article. Now, let me break these three segments down into their elemental parts for simplification.

Consensual Lien:

Consent is basic to human relations. Consent is granted from one individual to another. Example: a young man asks his girlfriend's father for his daughter's hand in marriage. The father, by giving his permission to the marriage, will have consented to the young man's request.

In the context of a consensual lien, the consent is reciprocal by nature. I will use the real estate mortgage as our example of a consensual lien. The homeowner asks the bank to consent to a loan, while the bank reciprocally asks the homeowner to consent to the offering of its land as collateral for the loan. When both sides consent, there is created a consensual lien.

Judicial Lien:

Human relations frequently create disputes. Many times a dispute will require judicial resolution. Whether or not this dispute involves Blackacre, the court may, at its discretion, allow for a lien to be placed on Blackacre by an injured party. This lien is certainly not consensual in nature.

The judicial lien is often found at the completion of divorce proceedings. Let us say that Mr. and Mrs. Property divorce. The property settlement agreement awards the property to Mrs. Property. However, the judge places a lien in the amount of $10,000.00 on Blackacre, now owned by Mrs. Property. This lien is in favor of Mr. Property. The judicial lien is true to its name; it is a lien, determined by a judge, to protect some one's interest.

Interestingly, Michigan's enactment of the Judgment Lien Act has curbed the necessity of court ordered lien rights. In brief, here is how it works: Let us say that Mr. A sues Mr. B for breach of contract. Mr. A wins the suit and is awarded $100,000.00. Let us further assume that Mr. B owns property in Oakland County. Before the enactment of the Judgment Lien Act, Mr. A would have had to exhaust all efforts of collecting on the personal effects of Mr. B before attacking the Oakland County property. He would have attacked the Oakland County property via levy and execution. Today, under the Judgment Lien Act, all Mr. A has to do is record his $100,000.00 judgment with the Oakland County Register of Deeds and presto, Mr. A holds an official lien against the property of Mr. B. This particular lien is created via statute, as discussed below.

The Judgment Lien Act will be the topic of a later article, as I can not fully discuss it in this writing. I raise the subject here to notify the reader that the line between judicial and statutory lien rights has begun to gray.

Statutory Lien:

Statutes are laws enacted by state legislatures. These laws, although influenced by court decisions, are not judge made. Example: The Michigan Construction Lien Act, which grants lien rights to unpaid contractors, does not require consent, nor does it require the contractor to initiate time consuming and expensive litigation. The Michigan Legislature, in enacting the Michigan Construction Lien Act, had made a determination that a material-man should have a simple and inexpensive way of protecting itself from nonpayment. A statutory lien is extremely powerful and beneficial to its holder. NOTE: I am only discussing the establishment of a lien, not the enforcement of said lien.

Conclusion:

A valid lienor (person holding lien rights) has a secured interest in Blackacre. In other words, the lienor's interest is secured to Blackacre. A person or entity with no lien rights is said to be unsecured as to Blackacre.

Regardless of which method a lien arises, the proper establishment of a lien is critical. Once established, the lienor has a legal interest in Blackacre. Ultimately, this gives the lienor tremendous and viable leverage against the land. In today's market, collecting on a debt can be quite an adventure. There are simply no absolute guarantees that a debt will ultimately be satisfied. However, the establishment of an official and valid lien will greatly aid the lienor in its efforts.

I hope to post articles more frequently then I have. Hopefully I will soon be in a career position to exploit this site and my endless enthusiasm regarding the elements of its creation.

-los lonely boy-