An equitable lien is a remedial right to have certain property applied to pay a debt. (In re Cedar Funding, Inc. (2009) 408 B.R. 299, 314.) This means it must be enforced in equity by the court, so the lien allows someone to subject property to payment of the debt or claim it as a charge against the property. (Little v. Amber Hotel Co. (2011) 202 Cal.App.4th 280, 292-293.)
How is an equitable lien created?
This type of lien usually arises from an instrument, like a written agreement, that states the intent to give or pledges property as security for an obligation. The property must be sufficiently identified. (Garter v. Metzdorf Associates (1963) 217 Cal.App.2d 812, 821.). The court will look more at the intent and purpose of the instrument rather than its form. McColgan v. Bank of California Nat. Ass'n (1929) 208 Cal. 329, 336-337.) To be enforced, the expenditures subject to the equitable lien must be on items or things which are traceable. (Montanile v. Board of Trustees of Nat. Elevator Industry Health Benefit Plan (2016) 577 U.S. 136, 147-148.)
The goal of an equitable lien is to prevent unconscionable and inequitable assertion of rights giving someone unjust enrichment. (Farmers Ins. Exchange v. Smith (1999) 71 Cal.App.4th 660, 665.) For example, signing a promissory note which allowed for the improvement of property without any agreement to negate your indebtedness on that loan may entitle you to an equitable lien on that property. (Beckman v. Mayhew (1975) 49 Cal.App.3d 529, 534.)
Where an express agreement indicates an intention to make a particular property a security for a debt, that creates an equitable lien enforceable against the property. This is not just enforceable by the promise, but also their heirs, administrators, or assignees. (Kaiser Industries Corp. v. Taylor (1971) 17 Cal.App.3d 346, 350-351.) An equitable lien is not created just by a promise, but if there was detrimental reliance or unjust enrichment a court might find a lien exists. (County of Los Angeles v. Construction Laborers Trust Funds for Southern California Administrative Co. (2006) 137 Cal.App.4th 410, 414-415.)
How are equitable liens enforced?
Two types of equitable liens exist, ones resulting from an agreement or intention and liens imposed because equity demands it. (In re Cedar Funding, Inc. 408 B.R. at 314.) An imposed equitable lien may even contradict intent but must be applied to prevent injustice.
If the lien arises from an agreement it arises from and serves to carry out the contract’s provisions. (US Airways, Inc. v. McCutchen (2013) 569 U.S. 88, 98.) However, just advancing funds with the expectation a court will find there was an interest created in the property will not suffice. (Grappo v. Coventry Financial Corp. (1991) 235 Cal.App.3d 496, 509.) There must be some sort of agreement especially if there is a transfer of property. (Wilkins v. Oken (1958) 157 Cal.App.2d 603, 607.) You cannot keep seeking a security interest and continue advancing funds, where someone refuses to grant an interest and then attempt to claim an equitable lien. (Grappo, 235 Cal.App. at 510.) The idea of an equitable lien is that one who seeks equity must do equity. (Campbell v. Superior Court (2005) 132 Cal.App.4th 904, 912.)
In some circumstances a court of equity imposes an equitable lien on real property in order to secure an obligation when required to do justice. Such a lien may arise when a party conveys title with the intent that the grantee holds the title as security for an obligation owed by the grantor to the grantee, but the security nature of the deed does not appear in the public records. (Cal. Civ. Code § 2924.) in this type of scenario if the court did not grant an equitable lien, it would result in unfairness to the parties.
Equitable lien for real property
An equitable lien may arise in relation to real property where a person agrees to give a mortgage or lien on property (or imperfectly attempts to execute a mortgage or lien). In these types of scenarios, a court will impose a lien where the parties erroneously created a defective mortgage, there was an intent to create a security interest but a lack of formal mortgage or deed of trust, or otherwise clearly attempted to make the real property a security.
An equitable lien may arise from a contract which reveals an intent to charge particular property with a debt, or out of general considerations of right and justice as applied to the relations of the parties and the circumstances of their dealings. (Title Ins. & Trust Co. v. California Development Co. (1915) 171 Cal. 173, 212.) In a quiet title action, erroneous notice of reconveyance of a home purchased a foreclosure may convert a mortgage lender’s deed of trust into an equitable lien. (U.S. v. Countrywide Home Loans, Inc. (2010) 408 Fed.Appx.3, 5.)
How an equitable lien may arise in a partition action
Any liens on property must be acknowledged in a partition action as it is binding on all parties to the action. (Ivancovich v. Weilenman (1904) 144 Cal. 757, 761.) An equitable lien may arise in an accounting stage of a partition action. Where the partition is between cotenants, one content relieving the property from a lien or charge for the joint benefit is entitled to an equitable lien. (Snider v. Basinger (1976) 61 Cal.App.3d 819, 823.)
This would increase the amount they are entitled to recover. However, while an equitable lien grants an interest in property it may not act as a basis for partition. To have the basis for a partition action you must have ownership of property. (C.C.P. § 872.710.)
What are Some Examples of Equitable Liens
For example, Julie and Shawn both signed onto a promissory note. Shawn owns a house and wishes to renovate it. Julie and Shawn both agree they will use this loan to renovate the property. A written or oral agreement between the two could create an equitable lien where Julie was singing onto the promissory note with the property itself acting as security. This would grant her an interest in the property.
Otherwise, if there was no agreement but Julie detrimentally relied, the court may find an equitable lien must be enforced as required by equity.
Specifically, if Julie felt she was entitled to a claim for partition she could claim the equitable lien had given her an interest in the property allowing her to partition it. Depending on what type of ownership Shawn had over the property Julie might have an interest.
Conclusion
You may be entitled to an equitable lien as part of a partition action based on your contributions to the property. In pursuing a partition action, a court will determine parties’ interests in the property and divide it accordingly. At Underwood Law, our partition attorneys can help you navigate your partition action efficiently and with care. We are here to help.
