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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. 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. If the obligation isn't satisfied, a creditor may have the ability to seize the asset that is the subject of the lien.
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
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
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 .
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.
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.
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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. 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.
Meet some of our Lien Lawyers
Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administration, and litigation. Terry is a graduate of the Georgetown University Law Center, where he was an Editor of the law review. He is active in a number of economic development, entrepreneurial accelerators, veterans and civic organizations in Florida and New York.
I'm a Washington-licensed lawyer specializing in trademark practice and with an extensive trademark education and academic background. I currently work with domestic and international businesses seeking trademark protection in the U.S. by conducting trademark searches, providing legal advice, submitting USPTO applications, and preparing responses to office actions. I'm passionate about trademark law and always looking forward to helping small and medium businesses promote their value by having a registered federal trademark. If you have questions or concerns about trademark/copyright/IP licensing and require legal advice, feel free to contact me so we can have a first chat.
Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.
I have 10 years experience providing general counsel, in the form practical and timely legal advice, under strict deadlines to individuals and various business unit stakeholders, balancing commercial needs with legal concerns at large corporations and start-ups. I am skilled at reviewing, analyzing, drafting and negotiating commercial and government contracts globally for the procurement and sale of services and goods. I also help clients ensure compliance with regulations (including data privacy), laws and contractual obligations and protect, enforce and exploit intellectual property rights and support in the development of IP strategy. I am a Certified Information Privacy Professional/United States (CIPP/US) licensed by the IAPP - International Association of Privacy Professionals.
Over 15 year experience drafting, reviewing and negotiating contracts both as in-house counsel and in law firms, including my own law firm.
Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.
Possesses extensive experience in the areas of civil and transactional law, as well as commercial litigation and have been in practice since 1998. I addition I have done numerous blue sky and SEC exempt stock sales, mergers, conversions from corporations to limited liability company, and asset purchases. I have worked in commercial litigation, corporate and transactional law, intellectual property and bankruptcy. In recent years I have expanded my practice to include family law, personal injury, medical malpractice, and wrongful death.