UNIT 13 RE taxes and other liens

Question 1

A lien

Answer 1

A lien is a charge or claim against a person’s property made to enforce the pay- ment of money.

Question 2

Security (also called collateral

Answer 2

Security (also called collateral) is something of value that the borrower promises to give the lender if the borrower fails to repay the debt.

Question 3

A voluntary lien

Answer 3

A voluntary lien is created intentionally by the property owner’s action, such as when someone takes out a mortgage loan.

Question 4

An involuntary lien

Answer 4

An involuntary lien is not a matter of choice; it is created by law and may be either statutory or equitable.

Question 5

A statutory lien

Answer 5

A statutory lien is created by statute. A real estate tax lien, for example, is an involuntary, statutory lien. It exists without any action by the property owner.

Question 6

An equitable lien

Answer 6

An equitable lien arises out of common law. A court- ordered judgment that requires a debtor to pay the balance on a delinquent account, and which can be filed in the county where the debtor owns property,
would create an involuntary, equitable lien on the debtor’s real estate.

Question 7

General liens

Answer 7

General liens affect all the property, both real and personal, of a debtor.

Question 8

Priority of liens

Answer 8

Priority of liens refers to the order in which claims against the property will be satisfied if the property is sold by the debtor. In general, the rule for priority of liens is first to record, first in right (priority).

Question 9

junior lien

Answer 9

The holder of a junior lien (one that comes after an earlier lien) can foreclose on that lien, but the property will still be subject to the lien or liens with higher priority.

Question 10

Subordination agreements

Answer 10

Subordination agreements are written agreements between lienholders to change the priority of mortgage, judgment, and other liens.

Question 11

ad valorem tax

Answer 11

The general real estate tax is an ad valorem tax. Ad valorem is Latin for “accord- ing to value.” Ad valorem taxes are based on the value of the property being taxed and are specific, involuntary, statutory liens.

Question 12

A tax levy

Answer 12

A tax levy is the formal action taken to impose the tax, usually by a vote of the taxing district’s governing body.

Question 13

MILL

Answer 13

A mill is 1⁄1000 of a dollar, or $0.001. The tax rate may be expressed as a mills- per-dollar ratio—for instance, in dollars per hundred or in dollars per thousand. A tax rate of 0.032, or 3.2%, could be expressed as 32 mills, or $3.20 per $100 of assessed value or $32 per $1,000 of assessed value.
I N P R A C T I C E An easy way to recall the value of a mill is to remember that there are 10 mills in a penny.

Question 14

statutory right of redemption

Answer 14

Some states grant a period of redemption after the tax sale. In this case, the defaulted owner (or the defaulted owner’s credi- tors) may redeem the property by paying the amount collected at the tax sale plus interest and charges (including any taxes levied since the sale). This is known as a statutory right of redemption. If the property is not redeemed within the statutory period, the certificate holder can apply for a tax deed (sheriff’s deed). The quality of the title conveyed by a tax deed varies from state to state.

Question 15

equitable right of redemption

Answer 15

the delinquent taxpayer may redeem the property anytime before the tax sale. The taxpayer exercises this equitable right of redemption by paying the delinquent taxes plus interest and charges (any court costs or attorney’s fees). An owner who does not exercise this right may force a sale.

Question 16

A special assessment

Answer 16

A special assessment is a tax charged on real estate to fund public improvements to the property, and it creates a lien for the amount of the assessment on the property.

Question 17

local improvement district (LID)

Answer 17

or large-scale improvement projects such as streets, sidewalks, and water or sewer construction, a local improvement district (LID) may be created. An LID is a specific geographical area formed by a group of property owners working together to fund needed capital improvements. LID taxation is simply a financing method available for the design and construction of public improvements.

Question 18

mortgage lien

Answer 18

mortgage lien is a voluntary lien on real estate given to a lender by a borrower as security for a real estate loan. It becomes a lien on real property when the lender records the documents in the county where the property is located. Lend- ers generally require a preferred lien, called a first mortgage lien.

Question 19

A mechanic’s lien

Answer 19

A mechanic’s lien is a specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve real property.