What is an Equitable Lien?

An equitable lien is a legal remedy designed to prevent unjust enrichment. The court places a lien on the property belonging to the wrongdoer or the one who is unjustly enriched in attempt to achieve justice. The remedy is based in equity, and a plaintiff may seek it in a regular trial court or in a court of equity if one is available in the applicable jurisdiction. A plaintiff cannot file this type of lien using an administrative process. The plaintiff must win a court order allowing the lien in the property of the defendant, and the plaintiff will gain a security interest if the court rules in favor of the plaintiff.

To persuade a judge in a court of law to place an equitable lien on the defendant’s property, the plaintiff often has to prove that there was wrongdoing that resulted in harm. For example, if the defendant embezzles money from the plaintiff to buy property, then the plaintiff can seek an equitable lien in that property. The plaintiff also may have the choice of an alternative remedy to a lien called the constructive trust. When a court imposes a constructive trust, it gives complete title of the property to a plaintiff because it was obtained by fraud or in bad faith. It’s often a better remedy for the plaintiff, especially if the property will increase in value.

Buyers of real estate with an equitable lien are subject to it if they were given notice or had prior knowledge of it. If the recipient of real estate that has an equitable lien gives no compensation or value for the property, then the buyer is also subject to the lien. A bona fide purchaser is often not subject to the lien under any circumstances. To qualify as a bona fide purchaser, the buyer has to show that he or she purchased the property for value and was unaware of the facts related to the lien and had no reason to be aware of them. Plaintiffs who obtain an equitable lien should put the public on notice by recording it with the local agency in charge of keeping public records.

There is a way to remove an equitable lien, but it’s up to the court that imposed the lien in the first place. The lien does not grant rights to possession of the property, but it may be used as a means to collect payment. The court may permit the defendant to pay the plaintiff money to undo the harm caused and remedy the unjust enrichment. Once paid, the court may release the lien.