Family loan with house lien: Is it a scam?

If a lien is placed on a property and the debt remains unpaid, the creditor has the legal right to foreclose on the house to recover the owed amount. The process for filing a lien typically involves approval through a county records office, with specific procedures varying by state. Debtors are often notified when a lien is placed on their property.

Liens can be categorized as voluntary, such as mortgages and home equity loans where the borrower agrees to use their home as collateral, or involuntary. Involuntary liens include tax liens (federal or property), judgment liens (issued by a court), and contractor's liens (for unpaid construction or real estate services). Homeowners associations can also place liens for missed dues.

In situations with multiple liens, such as a primary mortgage and a home equity loan, there is a hierarchy for repayment upon sale. The primary mortgage lender is typically paid first, followed by junior lienholders. Property tax liens hold a high priority and can supersede mortgage liens, potentially leading to the loss of the property for both the owner and the lender if taxes are not paid.