Unit 10
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Appropriation
The formal process by which a taxing authority authorizes the expenditure of funds and sets the amount of the tax levy for a specific period.
A city council votes to appropriate funds for road repairs, which then determines how much of the general real estate tax will be collected.
Collateral
Property or other assets pledged by a borrower to secure a loan. If the borrower defaults, the lender can seize the collateral.
When a homeowner takes out a mortgage, the house itself serves as collateral for the loan.
Encumbrance
Any claim, lien, charge, or liability attached to real property that may lessen its value or restrict its use, but does not necessarily prevent transfer of title.
A mortgage, unpaid property taxes, or an easement are all common encumbrances on a title.
Equalization Factor
A multiplier used by assessing officials to adjust assessed values so that properties in different areas are taxed more fairly when tax rates differ.
If one township assesses property at a lower percentage of market value, an equalization factor raises those assessments to match the county average.
Equitable Lien
A lien imposed by a court to achieve fairness when no formal statutory lien exists, based on principles of equity.
A court may create an equitable lien on property to secure payment of a debt that would otherwise go unpaid.
Estate Taxes
Taxes levied on the transfer of a deceased person's property to their heirs or beneficiaries. Also called inheritance or death taxes in some contexts.
When a large estate passes to heirs, federal and sometimes state estate taxes may be due before the property can be distributed.
General Lien
A lien that attaches to all of a debtor's property, both real and personal, rather than to one specific parcel.
A judgment lien or federal income tax lien is a general lien that can affect everything the debtor owns.
General Real Estate Tax
An ad valorem tax levied on real property by local governments (city, county, school district) to fund public services. Based on the assessed value of the property.
Homeowners pay general real estate taxes each year to support schools, police, fire protection, and local government.
Inheritance Taxes
State taxes imposed on the right of an heir to receive property from a deceased person. Distinct from federal estate taxes in some jurisdictions.
Some states still impose inheritance taxes that the beneficiary must pay based on their relationship to the deceased.
Involuntary Lien
A lien placed on property without the owner's consent, usually by operation of law (taxes, judgments, mechanic's liens).
Unpaid property taxes create an involuntary tax lien against the property.
Judgment
A formal decision by a court that one party owes money to another. Once recorded, it can become a lien on the debtor's real property.
After winning a lawsuit, the creditor records the judgment so it becomes a lien against the debtor's real estate.
Lien
A legal claim against property that serves as security for a debt or obligation. The lienholder has the right to have the property sold if the debt is not paid.
A mortgage creates a lien on the home that must be paid off or assumed when the property is sold.
Lien Waiver
A written document in which a contractor, subcontractor, or supplier gives up the right to file a mechanic's lien in exchange for payment.
Before final payment, the general contractor requires lien waivers from all subcontractors to protect the owner from future claims.
Lis Pendens
A recorded notice that a lawsuit is pending that may affect title to a particular property. It warns potential buyers of possible claims.
When a foreclosure lawsuit is filed, the lender records a lis pendens so that anyone checking the title is aware of the pending action.
Mechanic's Lien
A statutory lien that gives contractors, subcontractors, and suppliers the right to claim payment for labor or materials used to improve real property.
A roofing company that is not paid can file a mechanic's lien against the property to secure payment.
Mortgage Lien
A voluntary lien created when a property owner borrows money and pledges the real estate as security for repayment of the loan.
The first mortgage on a home is the most common form of mortgage lien.
Special Assessment
A tax levied against specific properties that benefit from a public improvement (new sidewalks, sewers, street lighting).
Property owners on a newly paved street may be charged a special assessment to help pay for the improvement.
Specific Lien
A lien that attaches only to a particular parcel of real estate rather than to all of the debtor's property.
A mortgage, mechanic's lien, and property tax lien are all specific liens.
Statutory Lien
A lien created by state or federal statute rather than by a contract between the parties.
Property tax liens and mechanic's liens are classic examples of statutory liens.
Subordination Agreement
A written agreement in which a lienholder agrees to take a lower priority position behind another lien, even though their lien was recorded first.
A second mortgage lender may sign a subordination agreement so a new first mortgage can take priority.
Tax Deed
A deed given to the purchaser at a tax sale. It conveys the property of a delinquent taxpayer after the redemption period expires.
After the statutory redemption period ends, the successful bidder at a tax sale receives a tax deed.
Tax Lien
A lien imposed by law against property for unpaid real estate taxes. It usually has priority over most other liens.
Unpaid county property taxes create a tax lien that must be paid before the property can be sold free and clear.
Tax Sale
A public sale of property by the taxing authority to collect unpaid real estate taxes. The highest bidder receives a tax certificate or tax deed.
If property taxes remain unpaid for several years, the county may sell the property at a tax sale.
Voluntary Lien
A lien created by the property owner's own action, such as signing a mortgage or home equity loan.
Taking out a mortgage voluntarily places a lien on the property.
Writ of Attachment
A court order that directs the sheriff to seize and hold a defendant's property until a lawsuit is decided, preventing the defendant from transferring assets.
A creditor who fears the debtor will sell property before judgment may request a writ of attachment.