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What Is a Lien?

A lien is a legal claim or legal right against an asset such as property. Liens are typically used as collateral to satisfy a debt. A lien can also be used to secure a legal claim or right, such as a mechanic's lien or a tax lien. This action provides security by giving an organization or individual the right to take possession of an asset or to take legal action to satisfy obligations or debts. A lien acts as a guarantee of an obligation, such as repaying a loan. A person or organization that files a lien is known as a lienholder.

A lien can be established by a creditor or a legal judgment. A lien can also be established by a contractual agreement, such as a mortgage or a car loan. If the obligation isn't satisfied, a creditor may have the ability to seize the asset that is the subject of the lien. Depending on the type of lien and the laws of the jurisdiction, a creditor may need to go through a legal process, such as foreclosure or repossession, to seize the asset.

Types of Liens

Various liens exist to secure assets. Liens are generally part of agreements to purchase real or personal property such as homes or auto loans. In situations where someone has a legal right to another person's property, this type of arrangement could qualify for a lien. Examples of liens include the following:

  • Home loan
  • Auto loan
  • Judgment lien
  • Mechanic's and construction lien
  • Tax lien

Home Loans

The property you buy serves as collateral when you borrow money to purchase a home. A loan agreement will include your agreement to allow your lender to foreclose on your property if you don't meet stipulated requirements. Requirements you need to fulfill may include the following:

  • Insuring the property
  • Making monthly mortgage payments
  • Living in the property as your primary residence for a specific number of years

Auto Loans

You may take out an auto loan if you buy a vehicle through financing. If you get a vehicle title loan, a type of secured loan in which borrowers use the vehicle title as collateral, you can file a lien with your state's department of motor vehicles (DMV).

An auto lender can take your vehicle from you if you don't meet the requirements of your auto loan. This process is known as vehicle repossession.

Judgment Liens

Someone may become a creditor if he or she wins a lawsuit against you. When a creditor can't immediately collect, the individual may have the right to file a lien against property you own. This lien ensures that you will eventually pay the damages when you can't immediately pay out of pocket.

Mechanic's and Construction Liens

Contractors who are performing work on your property expect that you will pay them. If you don't pay your contractors, these workers can file a mechanic's lien with your local municipality recorder's office. Mechanic's liens may also be filed if a contractor does not pay subcontractors.

Tax Liens

Your local government or the IRS may collect unpaid taxes with liens. Taxing authorities may attach liens to both current and future assets. Tax authorities can also collect from bank accounts before other creditors can. In fact, the IRS usually has the right to collect before your other lenders. Bankruptcy doesn't always discharge unpaid taxes either.

Lien

Image via Flickr by jongorey

Outcomes to a Loan That Includes a Lien

When you buy a product through financing, you consent to a lien. A lien on a vehicle loan is an example. The vehicle is the collateral in this case.

If you buy your vehicle from a dealer and secure it with a loan from your bank, the bank will put a lien on the vehicle and hold the title. This action gives the lender — your bank, in this example — a security interest in your property. The lender keeps ownership of the vehicle. If you default on your loan, or fail to pay, the lender may sell your vehicle to recover the amount of your loan.

When you take out a loan that includes a lien, you'll have one of three outcomes:

  • You make all payments and pay off the loan. In the example of the vehicle, your bank would release the title, and the lien would be removed.
  • You stop making payments. Continuing with the vehicle loan example, the bank would hold the title of the vehicle until someone purchases it. This action would release the original lien, and the lien would no longer exist.
  • You try to sell the property while you still owe money to the lender. In the case of the auto loan, your bank would still hold the title to the vehicle. As a result, you would need to pay off your bank to release the lien and obtain the title to sell the vehicle.

How Do Liens Benefit a Creditor?

Liens provide certain benefits to a creditor, whether they are currently lending you something or they are considering lending to you in the future.

  • Current lenders: If you don't repay your debt, a lien may give the current creditor the legal right to take possession of your property and sell your property.
  • Potential lenders: If you want to get a new loan, a potential creditor will see that existing claims are connected with your property since liens are public records.

Current Lenders and Creditors

If you're promising to repay a lender, a lien provides added security. For example, when you're buying a home, a lender doesn't have much leverage if you stop making payments on your house. The lender can file certain documents with your local government to become a lienholder for your property, thus securing the debt and making it more likely that you will repay the loan.

Potential Future Lenders and Creditors

Existing debts need to be paid first. A potential new lender will know that you will need to take care of a lien before you can pay back your lender. A lien, therefore, can make selling a property before clearing up the lien difficult if almost impossible. Liens will also usually prevent you from selling or refinancing the property, such as a home or automobile, unless you pay off outstanding debts as part of the process.

Release of Lien

If you want to sell property you own, you would need to get a release of lien against it. You will have difficulty selling property unless you resolve requirements of the lien to release it.

Generally, a lien can only be released by the organization or person who created it. A lien can also be released by a court order or by the passage of time, such as when a lien expires after a certain number of years. However, some actions you can take may release the lien including the following:

  • Paying off the lien
  • Settling the lien
  • Correcting the lien
  • Disputing the lien

Paying Off the Lien

If a lien is legitimate, your only option may be to pay off your debts. Liens may be removed when a home or financed vehicle is sold.

Settling the Lien

If you don't have enough money to pay off your debt, you can attempt to negotiate the lien. Sometimes creditors are willing to accept less than the full amount you owe to get some funds immediately and not worry about the loan any longer.

Correcting the Lien

In some cases, a lien may not be legitimate. Contact the lienholder if you believe this situation is the case for you. A lien release could possibly be lost or forgotten.

An example of when this scenario might occur is when buying a used vehicle from someone who previously had an auto loan. The lien release might not be detected in this transaction. If you bring up the issue with the correct person, calling attention to the lien might be all you need to do to resolve the lien.

Disputing the Lien

You may need to bring legal action in case of a disagreement against the lienholder to have a lien released. You can investigate whether claims are still valid. Liens may expire after several years.

If you have questions about a lien, consult with an attorney to clarify your situation.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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I am a 1984 graduate of the Benjamin N Cardozo School of Law (Yeshiva University) and have been licensed in New Jersey for over 35 years. I have extensive experience in negotiating real estate, business contracts, and loan agreements. Depending on your needs I can work remotely or face-to-face. I offer prompt and courteous service and can tailor a contract and process to meet your needs.

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Lien

Florida

Asked on Jun 23, 2022

I purchased a car with a lien and the seller vanished on me and now I’m stuck with a car with no titile can you help me remove the lien ?

Purchased a car that had a lien on it , after comforting the seller about not telling me about the lien he has Disappeared and now I’m stuck with this car

Jane C.

Answered Jul 29, 2022

Have you tried calling the Department of Motor Vehicles to see what can be done.

Read 1 attorney answer>

Construction

Lien

Georgia

Asked on Aug 27, 2021

Need a free consultation.

We are selling our house in 1 week and a GC put a fraudulent lien on our home well past the 90 days. Thank you

Donya G.

Answered Oct 5, 2021

Why is the lien fraudulent? Here are some options: How to remove a property lien You'll need to file a lien release form in order to sell or transfer your property. A lien release form can remove a property lien, or a claim a creditor has against your property for a debt you owe. Property lien removal process A lien against your property will prevent you from selling it until that debt is paid. Here are the steps to take to remove the claim of the lien holder against your property. Make sure the debt the lien represents is valid. If you don't believe you owe the debt to which the lien is attached, you may want to consult with an attorney. Pay off the debt. If the debt is valid, pay the creditor in full. If you work with an attorney, you may be able to negotiate a lower payoff amount. Fill out a release-of-lien form. You can often find lien release paperwork online. If not, try the county clerk's office or an attorney, if you have one. Make sure the form includes your name, the lien holder's name, proof and amount of the debt paid, and a description and address for the property. Have the lien holder sign the release-of-lien form in front of a notary. The lien holder needs to sign the document in the presence of a notary public. File the lien release form. You'll usually file the lien release at the county recorder's office, at which point it becomes public record. You may have to pay a small fee to file. Ask for a lien waiver, if appropriate. A lien waiver is a document from a contractor showing that you have paid for the work in full and waiving all future lien rights of the contractor in the work or equipment. Keep a copy. You'll want to have a copy of the release form for your records. Other ways to avoid or remove a lien Court order. If you believe the lien exists due to bad faith, coercion, or fraud, you may be able to obtain a court order lifting it. The lien is a result of a money judgment issued by the court. I encourage you to engage an attorney with knowledge and expertise to assist you with this matter. All the best, Donya

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Real Estate

Lien

Virginia

Asked on Jun 24, 2022

Lien on house

Trying to sell home. My title company having issue settling the debt. Title company contact loan to payoff, but no record of my property was found. Only past owner current home is on the loan. Quit Deed was done 2012. In 2015 past owner loan was passed to a different company who record in Florida my parcel number. So basically I can't pay loan off because my home is not attached to her loan. I still can't clear title because lien was recorded 2015 in Fl court house, but The past owner was no longer on deed. Looking to hire a lawyer to clear title, so I can sell my home.

Michael T.

Answered Jul 19, 2022

This sounds complicated enough that you need a lawyer to get involved. Do you have a title insurance "owner's policy"? If so, that might get you a free lawyer (I can't tell from the facts you presented whether that will work). Also, you've tagged this question as a Virginia question, but you mention the lien being recorded in Florida. You need an experienced lawyer in the jurisdiction in which the property is located. If the house is in Virginia, you need a Virginia lawyer; if in Florida, you need a Florida lawyer. If it's a lien on Virginia property from a Florida judgment, then you need a Virginia lawyer, because that's where the property is located.

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Debt Collection

Lien

California

Asked on Feb 5, 2024

My brother paid off the mortgage loan of my parent's home in California in Jan 2021. In return the ownership was transferred to his name. However, in mid 2023 a lien was put on the property for $80K. We had no idea who filed, after talking with my father he told us that could be a judgement for him to pay back for the "zeek reward" scheme that he joined from more than 10 years ago. Is that legal for the lien to be on the property now that my father is not the owner?

The house is an investment property with renters, my father lives in one room and we do have a rental agreement with him. He manages the property since my brother and sister who are the owners of the property are living in different states.

Joseph M.

Answered Feb 6, 2024

If the judgment was against your father and not you then you should be able to fight the lien.

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Real Estate

Lien

North Carolina

Asked on Jun 9, 2022

Collect a lien against property sold in tax sell monroe nc

Collection of lien

Holly T.

Answered Jun 17, 2022

The timelines for a creditor to file perfect and demand lien satisfaction are specific and you will need an attorney to take care of this, assuming it is still an option.

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