Equitable Liens on Real Estate

Posted in Real Estate

Suppose you have sold real estate to someone else and take a mortgage back from the buyer to secure payment of the sale price. Suppose, again, that you find out that there’s something wrong regarding that mortgage. Maybe the buyer claims he didn’t sign it. Maybe it describes the real estate incorrectly. Maybe it gets lost on the way to being recorded. Maybe…well, you get the point. If there’s something wrong with your mortgage, how can you be sure it’s a lien on the real estate to protect your “financial assistance” to the buyer with the sale price?

The answer (assuming you don’t have title insurance) may be filing an action to request an equitable lien on the real estate. An equitable lien is a lien imposed by a court when someone lends money or furnishes services to someone else, and intends real estate to secure the loan or services rendered, but (for whatever reason) doesn’t have an existing lien on the real estate. The ultimate rationale behind an equitable lien is to prevent a windfall/lucky break to the person whom money was lent to or services performed for, and who expected a mortgage on his real estate, but doesn’t have one. Three conditions must exist under Pennsylvania law for the imposition of an equitable lien—an obligation from one to another, a piece of real estate which is related to the obligation, and an intent between the obligor and the obligee that the real estate secure the obligation.

Practically, if an equitable lien is imposed by a court, it should reflect as many of the terms of the intended mortgage as possible, but at a minimum the original face amount of the mortgage. The court should also indicate that the equitable lien’s priority relates back to the date the intended mortgage was originally entered into or dated.

At Stark & Stark, we possess the expertise to file and prosecute actions for equitable liens in all Pennsylvania counties. If you feel you may benefit from the imposition of an equitable lien, do not hesitate to contact us.