Liens, Levies & Promises Liens, Levies & Promises Neither the information in this presentation, nor in the associated discussion, is in the text. A “lien” is a legal right to apply another person’s property to the payment of a debt owed to the lienholder by the property’s title holder (“owner”). Frequently a lien is made known by a document filed with the same government office that records deeds or claims against property. A lien against real property is frequently called an “encumbrance.” A lien can come into existence in a number of ways, some voluntary, some not. Examples of voluntary liens include: Mortgages on real property. Seller’s or bank’s security interest in automobiles. Examples of involuntary ones : Tax lien Judgment lien A voluntary lien comes into existence when the owner of an item of property grants to another party the right to sell that property to pay off a debt. This is usually done in a written contract or document. Some liens, such as those against automobiles, must be shown on title documents. An involuntary lien when the law grants one party (sometimes the government) the right to seize and sell another party’s property to satisfy a debt. The entry of a court judgment or non-payment of taxes are the most frequent types of involuntary liens. There are a number of liens that might be called “semi-voluntary. These are created by statute (usually state). They grant a lien for payment to a party that has performed labor goods or services with respect to a particular items. The lien is only against the item. These are “semi-voluntary” because the item’s owner must first agree (contract) that the person perform the labor, goods, or services. Most states give watchmakers a lien on the items they repair. The more traditional of these liens are commonly called “artisans’ ” liens. Artisans’ liens are created by state law. There is a core group that appear in most states’ statutes. There are often additional ones that reflect the economy of the state or address a particular problem that arose in the state sometime in the past. Some liens granted by Texas statute are: Mechanic’s, Contractor’s or Materialman’s lien (on real property) A general “workers’ lien” in favor of anyone who does work on specific items of property. [Broader, but includes, traditional “artisans” lien.] Stable keeper’s, garageman’s, pasturer’s, or cotton ginner’s lien Plastic fabricator’s lien on customer’s molds, dies Stock breeder’s lien on resulting offspring Agricultural producer’s lien products sold and delivered before payment The so-called “mechanic’s” lien grants a lien against real property in favor of those who do something that “improves” that property. Persons or companies that might have a lien: General contractors who oversee the entire job. “Sub-contractors, like electricians, plumbers, roofers, etc. Persons who supply materials to the workers, such as the lumber yard, the plumbing supply company, the custom-window manufacturer. [“Materialmen” ] It is not necessary that the property owner have a direct contract with, or even know specifically about a particular supplier or worker. To foreclose on a mechanic’s lien, the lien holder generally must: File a notice of lien with the local official who records deeds, usually within a very short period (often 30 days after completion). File a legal action to foreclose and obtain a judgment allowing the improved property to be sold to pay the debt. In many states, materialmen must give a specific notice to the land owner BEFORE the materials are actually delivered to the property. “Artisan’s” liens are like “mechanic’s” liens, except artisan’s liens are given to persons who do work on personal property. The liens given by Texas law to garagemen, stable keepers, and general workers are typical artisan’s liens. Artisan’s liens generally differ from mechanic’s liens in that the lien exists ONLY as long as the lienholder has possession of the item. In Texas, there is a special rule that allows the lienholder to “re-possess” the item if she gave it back to the owner after “payment” with a bad credit card, rubber check, or the owner puts a “stop-payment” on the check or charge. In most states, including Texas, the artisan does not have to go to court to enforce her or his lien. If the proper time periods and notice procedures are observed, the artisan can sell the item. From the sale proceeds, she keeps enough cash to pay the debt and gives what is left to the item’s prior owner. Many artisans file a court action and obtain a court judgment, even though it is not necessary. If a court action is filed, the artisan: Eliminates the risk of missing one of the obscure and numerous procedural rules A “levy” is the legal act that connects or “attaches” the debt to a particular item. In many states, real property taxes are not imposed on the property owner. Instead, they are levied directly on the real property. The owner has no legal obligation to pay the taxes. Of course if he does not, the property will eventually be sold for delinquent taxes. The I.R.S. may serve a “notice of levy” on someone that owes money to, or holds property of, a delinquent taxpayer. That attaches the I.R.S. tax lien to the property owed or held by the served person. If the debtor does not pay, a lien holder can “foreclose” on the encumbered property to pay the debt – court action. Normally, the lien holder forecloses by selling the property and applying the resulting cash to: Costs incurred in foreclosure (fees, advertising, etc.), then The debt, including interest, late fees, etc., as in the contract. If there is anything left over, that belongs to the debtor. If the sale does not bring in enough to pay the costs and the debt, the result varies. Some statutes allow the creditor to take the same actions as any other unsecured creditor, i.e. collect the “deficiency” by legal action. Some statutes do not allow the creditor to take further action. The sale proceeds is all that he gets. When a judgment is entered, it automatically becomes a lien on all real property interests of the judgment debtor in the county where the judgment was entered. (That can be extended to other counties by filing the judgment in the other county.) A judgment becomes a lien on personal property only when the personal property is “attached” or “levied on” by the sheriff. To attach personal property the sheriff or his deputies go out and find the debtor’s property and take physical custody of it. Property (real or personal) subject to a judgment lien is sold by the sheriff, normally at an auction held on the courthouse steps – or the front door if there are no steps. Naturally, this type of sale does not result in a good price. Usually, (a) very few know about the sale, (b) the buyer must pay cash, in full, at the sale or no less than a day later, (c) people know sheriffs’ sales are a place to get a real bargain. The lien holder can “pay” a sale price with all or part of the amount owed. Usually the lien holder is the highest bidder. If the auction does not produce enough to pay the costs and the debt, the creditor can send the sheriff’s deputies out to find more stuff. E. “Exempt” Property 1. 2. Every jurisdiction has statutory list of property that cannot be taken by creditor to satisfy debts a. Usually considered the minimum necessary to live, maintain family b. Many statutes are very, very old — unreasonable due to inflation Bankruptcy law allows debtor to keep exempt property a. b. Originally used state exemptions (not uniform) Enacted bankruptcy exemption list (1) Caused inequality within each state, equality across states (2) Amended to allow states to require use of state exemption rules (3) Most (35+) decided to require state exemptions TEXAS PROPERTY CODE Title 5. Exempt Property and Liens Chapter 41. Interests in Land Chapter 42. Personal Property Chapter 43. Exempt Public Property Chapter 44. Taxation of Retirement Benefits by Another State Chapter 51. Provisions Generally Applicable to Liens Chapter 52. Judgment Lien Chapter 53. Mechanic's, Contractor's, or Materialman's Lien Chapter 54. Landlord's Liens Chapter 55. Hospital Lien Chapter 56. Liens Against Mineral Property Chapter 57. Railroad Laborer's Lien Chapter 58. Farm, Factory, and Store Worker's Liens Chapter 59. Self-service Storage Facility Liens Chapter 60. Newspaper Employee's Lien Chapter 61. Motor Vehicle Mortgagee's Lien Chapter 62. Broker's & Appraiser's Lien on Commercial Real Estate Chapter 63. Manufactured Home Lien Chapter 70. Miscellaneous Liens TEXAS PROPERTY CODE § 41.001. Interests in Land Exempt from Seizure (a) A homestead and one or more lots used for a place of burial of the dead are exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property. (b) [ omitted ] (c) The homestead claimant's proceeds of a sale of a homestead are not subject to seizure for a creditor's claim for six months after the date of sale. § 41.002. Definition of Homestead (a) If used for the purposes of an urban home or as both an urban home and a place to exercise a calling or business, the homestead of a family or a single, adult person, not otherwise entitled to a homestead, shall consist of not more than 10 acres of land which may be in one or more contiguous lots, together with any improvements thereon. (b) If used for the purposes of a rural home, the homestead shall consist of: (1) for a family, not more than 200 acres, which may be in one or more parcels, with the improvements thereon; or (2) for a single, adult person, not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon. CHAPTER 42. PERSONAL PROPERTY § 42.001. Personal Property Exemption (a) Personal property, as described in Section 42.002, is exempt from garnishment, attachment, execution, or other seizure if: (1) the property is provided for a family and has an aggregate fair market value of not more than $60,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property; or (2) the property is owned by a single adult, who is not a member of a family, and has an aggregate fair market value of not more than $30,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property. (b) The following personal property is exempt from seizure and is not included in the aggregate limitations prescribed by Subsection (a): (1) current wages for personal services, except for the enforcement of courtordered child support payments; (2) professionally prescribed health aids of a debtor or a dependent of a debtor; (3) alimony, support, or separate maintenance received or to be received by the debtor for the support of the debtor or a dependent of the debtor. (c) This section does not prevent seizure by a secured creditor with a contractual landlord's lien or other security in the property to be seized. (d) Unpaid commissions for personal services not to exceed 25 percent of the aggregate limitations prescribed by Subsection (a) are exempt from seizure and are included in the aggregate. § 42.002. Personal Property (a) The following personal property is exempt under Section 42.001(a): (1) home furnishings, including family heirlooms; (2) provisions for consumption; (3) farming or ranching vehicles and implements; (4) tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession; (5) wearing apparel; (6) jewelry not to exceed 25 percent of the aggregate limitations [sec. 42.001]; (7) two firearms; (8) athletic and sporting equipment, including bicycles; (9) a two-wheeled, three-wheeled, or four-wheeled motor vehicle for each member of a family or single adult who holds a driver's license or who does not hold a driver's license but who relies on another person to operate the vehicle for the benefit of the nonlicensed person; (10) the following animals and forage on hand for their consumption: (A) two horses, mules, or donkeys and a saddle, blanket, and bridle for each; (B) 12 head of cattle; (C) 60 head of other types of livestock; and (D) 120 fowl; and (11) household pets.