A common type of voluntary lien is a mortgage against a single-family residence. The bank or other lender places a lien on the homeowner's property to secure repayment of the money borrowed by the homeowner. If the property is held in trust, the lender can issue the loan and record the lien in the name of the trust; however, although legally permissible, lenders are typically reticent to do this. As a practical matter, lenders typically require that title to the property be transferred from the trust to the borrower, and then the lender will make the loan in the name of the borrower and record the lien in the borrower's name.
Several types of liens that are authorized by law can be recorded against property without the owner's consent. For example, a contractor or subcontractor who provides goods or services to improve real property can record a material-man's or mechanic's lien against the property to secure payment. Regardless of who holds title to the property, the mechanic's lien can be enforced against the property. Liens created out of a court-based remedy, such as a judgment lien, can also be recorded against property without the owner's consent. Whether the creditor can enforce the judgment lien against a debtor's property transferred to a trust depends on the type of trust.
The term "living trust" describes a trust agreement prepared for use during the lifetime of the person making the agreement, called the grantor. Typically, the grantor transfers title to his assets from himself to the trust. Several sound legal reasons exist for creating a living trust for your property; however, asset protection is not one of them. Creditors who sue you and obtain a judgment lien can place that lien against your property, including your home that was transferred to a living trust. If the living trust was made by a husband and wife, the creditors of either spouse can enforce liens against the property in the trust.
In Illinois and Florida, a land trust offers a small measure or protection to married persons from judgment liens. For example, if a creditor of one spouse obtains a judgment lien for a debt for which the other spouse is not liable, the creditor cannot enforce the lien against the spouses' primary residence held in a land trust. However, this protection does not apply if both spouses are liable for the debt or if the lien relates to an IRS claim.