A lien is considered a legal right to claim or seize any property from a borrower who has failed to make full repayments to a creditor. In a legal standing agreement between a borrower and creditor, the creditor has the right to withhold the property until the loan has been repaid, or can sell off the property to cover outstanding amounts owed on the loan.

An agreement is only considered a lien once it has been filed with the necessary authorities, and the creditor has legal authority over the borrower’s property.

What types of Liens exist?

  • Consensual Lien: Borrowers will in some cases voluntarily consent to a legal contractual obligation to secure a financial loan. The loans are considered for the purchase of the real estate, and the borrower uses the property as security to make principal payments to the creditor.
  • Non-consensual Lien: This lien is considered a statutory lien, and is assessed by the local government. The reason for this is to ensure property owners have successfully paid all real estate taxes owed on their property.

If a property owner has failed to make the necessary tax payments, the property may be seized and sold to ensure the owed tax is repaid. These liens are usually issued either by local government authorities or the court.

Other forms of liens

  • Auto Loans: made to assist with the purchasing of a vehicle
  • Home Loans: to purchase property or real estate
  • Judgment Lien: when a creditor legally wins a lawsuit against a borrower and seized their property.
  • Tax Lien: used by local government entities such as the Internal Revenue Services (IRS) to seize property to fulfill repayment of real estate taxes.
  • Mechanic and Construction Lien: filed to local government authorities when an individual can’t make payments to contractors on completed work on their home or property.

Read more: Understanding first lien, senior secured and subordinated debt.

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