What Is Lien in Real Estate?

Every lien question, answered

Every question above with its correct answer and the reasoning behind it. Read the explanations for the ones you answered correctly too. A lucky guess and knowing the rule look identical on a score report. These are sample questions from our larger bank.

1. 1. In a lien theory state, during the life of a mortgage loan:

   • AThe lender holds legal title until the debt is paid
   • BThe borrower retains legal title and the lender holds only a liencorrect
   • CNeither party holds title until a foreclosure sale occurs
   • DLegal title is held by the county recorder as custodian

   Why: Lien theory — the majority approach — leaves legal title with the borrower and gives the lender a security interest only. Title theory is the view that legal title itself passes to the lender until payoff.

   Financing

2. 2. A borrower in a lien theory state stops making payments. The lender must:

   • ARecord a deed of reconveyance to terminate the borrower’s rights
   • BObtain the borrower’s written consent before any sale can occur
   • CTake possession at once, since the lender already holds title
   • DForeclose so the lien can be enforced and the property soldcorrect

   Why: Holding only a lien, the lender must foreclose to convert that lien into a sale. Self-help repossession is not available, and a reconveyance would do the opposite — it releases the security interest.

   Financing

3. 3. A lender holding a recorded loan agrees that its lien will move behind a new construction loan on the same parcel. The lender has signed a:

   • ADefeasance clause
   • BSubordination agreementcorrect
   • CAlienation clause
   • DNovation

   Why: Subordination voluntarily lowers an existing lien’s priority so a later loan can take first position. A novation would substitute a new party or contract, which is not what changing lien priority accomplishes.

   Financing

4. 4. A developer finances 20 lots under a single blanket mortgage. The provision that lets individual lots be sold free of that lien is the:

   • APartial release clausecorrect
   • BAlienation clause
   • CDefeasance clause
   • DSubordination clause

   Why: A partial release (or "release") clause frees one parcel at a time as the developer pays down the blanket loan. Defeasance would release the entire lien, and only at final payoff of the whole debt.

   Financing

5. 5. A judgment lien is properly classified as:

   • ASpecific and contractual
   • BGeneral and involuntarycorrect
   • CSpecific and equitable
   • DGeneral and voluntary

   Why: Court judgments attach to all property the debtor owns in the jurisdiction and are imposed without consent, making them general and involuntary. Mortgages, by contrast, are specific and voluntary.

   Property ownership

6. 6. Which lien has first priority over all other liens against a parcel, regardless of when any lien was recorded?

   • AA mechanic's lien filed last
   • BA recorded judgment lien
   • CA general real estate tax liencorrect
   • DA first mortgage lien recorded before any other lien

   Why: Real estate tax and special assessment liens receive statutory priority over other liens regardless of recording dates. A first mortgage is superior only to interests that attach after it, and even then a mechanic's lien can relate back ahead of it.

   Property ownership

7. 7. The priority of a mechanic's lien usually relates back to:

   • AThe date the court enters judgment
   • BThe date the lien is recorded
   • CThe date the owner sells the improved property to a third party
   • DThe date work began or materials were first furnishedcorrect

   Why: Statutes commonly make the lien effective as of the date work commenced or materials were first delivered, which can place it ahead of later mortgages. Using the recording date alone would leave early suppliers unprotected.

   Property ownership

8. 8. A lien arising from the agreement or conduct of the parties rather than from a statute is:

   • AA statutory lien
   • BAn equitable liencorrect
   • CAn involuntary lien
   • DA general lien

   Why: Equitable liens grow out of the written agreement or the conduct of the parties and are enforced on principles of fairness. Statutory liens exist only because a law creates them, as with tax liens.

   Property ownership