Can a Lien Be Placed on an Investment Property Owned by Multiple Parties?

A lien is the right to take possession of someone's property if he fails to pay his debt. A lien can be placed on investment property, even if that property is owned jointly by multiple owners. However, the effects of that lien may depend heavily on not only the type of lien, but also the type of ownership under which the joint owners hold the property.

Tenancy in Common

Tenancy in common is a type of joint ownership in which each owner, or "tenant," holds his own fraction of the property; these fractions need not be equal. Although the tenants generally share use of the whole property, they each own their own undivided interest. In a tenancy in common, if one tenant incurs a lien, the lien will generally attach only to that single owner's fraction of the property; the lien holder can't confiscate the whole piece. However, some federal courts have held that in the case of a federal (IRS) tax lien, the IRS may be able to seize the entire piece of property and sell it in foreclosure. If this happens, the other co-owners who were not involved with the lien would then be repaid, in proportion to their ownership, out of the sale proceeds.

Joint Tenancy

Joint tenancy is a more complicated form of joint ownership. Joint tenants hold the property together, but their ownership is not divided, as in joint tenancy. Each joint tenant owns the entire piece of property, and when one joint tenant dies, his ownership is subsumed back into the whole (a concept known as right of survivorship). For instance, if three people own a lot as joint tenants, and one dies, the remaining two are now co-owners. When the next one dies, the remaining one owns the entire property, free and clear.

Joint Tenancy Liens

Because joint tenants don't have clear, divide rights to a fraction of the property, as tenants in common do, the business of liens placed on joint tenancy property can be complicated. Typically, a creditor cannot simply seize all or part of joint tenancy property to satisfy a lien against one tenant. A creditor who holds a lien can sue for partition by sale, a legal action that will effectively end the joint tenancy by selling the property and dividing the proceeds. If the creditor does this, he can generally recoup his security interest from the sale proceeds. But if he fails to do this, and the tenant who incurred the lien dies, then the creditor's interest in the property will effectively die with him, and the creditor can't use the property as security at all.

Mortgages

Mortgages present a special issue. Most states regard mortgages as a type of lien, and so, as with other lien holders, a mortgage lender will need to foreclose and force sale of the land in order to sever a joint tenancy. However, a minority of states find that a mortgage, as a transfer of rights in the land, severs a joint tenancy automatically. In this case, the mortgage lender wouldn't need to foreclose in order to simply seize the land. Because mortgages on jointly owned property can be so complex, a lender will generally require all joint owners to sign on to the mortgage.

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