Do Liens Accrue Interest and How It Affects Property Owners

Liens can indeed accrue interest, and this can have a significant impact on property owners.

The type of lien, such as a tax lien or a mechanic's lien, determines whether interest accrues.

A tax lien, for instance, can accrue interest at a rate set by the state, which can be as high as 18% in some cases.

This means that the longer a property owner takes to pay off a tax lien, the more interest they'll owe, and the higher their total debt will be.

In some states, interest on a tax lien can be compounded annually, which means it's added to the principal amount and then interest is calculated on that new total.

This can lead to a snowball effect, where the property owner's debt grows exponentially over time.

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A lien is a claim or right to take possession of someone's property, typically used by a creditor to secure payment of a debt.

It can be filed against personal property, such as a car or boat, or real estate.

A lien is usually created by a court order, but it can also be voluntarily agreed upon by the property owner.

The most common types of liens are mechanic's liens, tax liens, and mortgage liens.

Mechanic's liens are filed by contractors who have not been paid for their work.

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Open liens have a fixed 12% annual interest rate, which is much higher than the annual interim interest rate of 5.20% for bonded or contracted liens.

Bonded or contracted liens, on the other hand, have a lower interest rate, and the lien carries a temporary interest rate until a bond sale.

In some cases, property owners can defer payment on sewer charges for large lots, but this assistance is no longer offered.

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A Sewer SDC Large Lot Deferral is an open type of assistance that was offered during the Mid County Sewer Program.

Property owners who received this assistance could defer payment on a portion of their sewer charges for properties with large lots. This assistance is no longer offered.

The deferred charges must be paid in full when the property changes ownership. A new owner cannot assume the large lot deferral.

A fixed annual interest rate of 5% is charged against the principal amount while the charges are deferred. This accrued interest must be paid when the principal amount is paid.

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In Florida, a judgment creditor can collect interest on the amount owed, but this is separate from late-payment or delinquency fees.

The interest rate is established quarterly by Florida's chief financial officer and can vary over time. For court judgments effective as of October 1, 2019, a judgment creditor is entitled to a statutory annual interest rate of 6.89 percent.

A recent court case, Fernandez v. Manning Building Supplies, Inc., helps to clarify the distinction between late fees and interest charges. The case involved a construction lien filed by a builder against two customers.

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The judge in the case initially ordered the customers to pay 18 percent annual interest on the unpaid judgment, based on a contract clause that stated a delinquent account would incur a 1.5 percent monthly delinquent charge. However, the First District Court of Appeals later ruled that this was incorrect, as the contract provided for a delinquency charge rather than a finance charge.

This means that the customers are not entirely off the hook for interest payments, but the interest rate must reflect the statutory interest rate, which is established quarterly by Florida's chief financial officer.

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Open liens have a fixed 12% annual interest rate, while bonded liens have a temporary interest rate called an annual interim interest rate, which is currently 5.20%.

You can pay open liens in full 30 days from the assessment date or contract to pay over time. This interest-free period only applies to full payment of the initial assessment within the first 30 days.

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Delinquent open liens incur a penalty of 1/4 of 1% on the principal amount if not paid after 60 days. Conversely, bonded liens will accrue late interest against the unpaid-billed principal after 30 days, and a penalty of 5% will accrue on the past due installment after 60 days.

A recent decision in Florida, Fernandez v. Manning Building Supplies, Inc., highlights the importance of distinguishing between late fees and interest charges. The court found that a 1.5% monthly delinquency charge was not a finance charge, but rather a delinquency charge.

Here's a breakdown of the interest rates mentioned in the article: