What Is a Lien?

Liens are legal claims a party can place against a person’s real estate or other assets to ensure repayment of a debt or loan. These liens remain attached to the property’s deed or title until you pay the balance due, negotiate an agreement or pay the loan in full.

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Do you know what a lien is? If you owe a creditor money or have a car loan, it’s possible that you already have a lien against specific property. Whether you currently have a lien against one of your assets or not, it’s important to understand what a lien is, how it works and what it means for you.

A lien is a legal claim a creditor takes against a specific asset that can serve as a type of collateral to ensure repayment of debt or payment of a court order. Banks, courts and contractors most commonly issue these claims.

A lien is often applied to the title or deed of a specific asset, preventing the owner from selling that property without first removing the lien. If you fail to repay your debt and there’s a lien against the property, the creditor may be able to seize the property and sell it to recoup the money owed.

How Does a Lien Work?

Liens can either be voluntary or involuntary. Voluntary liens, also referred to as consensual liens, occur when both parties agree to place a lien against a certain asset, such as a home mortgage. Involuntary liens take place without the owner’s approval. These liens are issued by tax agencies for unpaid taxes and through court orders when a person fails to pay their debt despite a court judgment.

Both voluntary and involuntary liens could result in the loss of property. For example, if you fail to pay on a loan or court order, the lienholder could seize your property, sell it and use the proceeds to cover your debt. Additionally, you may have difficulty selling an asset that has a lien against its title or deed.

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What Are the Different Types of Liens?

There are several different types of liens, including the following.

Bank Liens

The majority of lending banks place a bank lien against a specific asset when issuing a loan. This lien helps guarantee that the loan is paid in full. For example, when you take out a car loan with a bank, the bank will likely place a lien against the title of the car until the loan is paid in full.

Judgment Liens

Judgment liens are issued by the court and are typically only issued if a party fails to pay after a court order. For example, if another party sues you and the judge orders you to pay a set amount, a lien can be placed against your property if you fail to pay this debt in full.

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Mechanic’s Liens

If you hire a contractor to complete work on your home or other property but then fail to pay them in accordance with the contract, that contractor can file a mechanic’s lien against your home. This lien will remain intact until you pay the full amount due or reach a settlement with the contractor.

Property Liens

A lien on property goes against the title of your home or other real property. Typically, mortgage lenders place property liens on the real estate being purchased or the asset being used as collateral. Property liens help protect the lender in the event a homebuyer defaults on the loan.

Tax Liens

Failure to pay your federal, state, local or property taxes can result in having a tax lien placed against the title of your home or other valuable assets. Tax liens usually take priority over all other types of liens and must be paid first.

How to Remove a Lien?

There are several ways you can remove a lien from your property or other assets. These methods include:

• Pay the loan off in full.
• Negotiate an agreement with the lienholder to settle your debt and have the lien removed.
• Dispute the lien either with the lienholder directly or by filing a lawsuit.
• Make an agreement with the lienholder to sell the property in exchange for using the proceeds to pay off the balance of the debt.

If you currently have a lien against one or more of your properties, it’s important to understand that you must have this lien removed before you can lawfully sell the property. Depending on the type of loan, you can use one of the methods listed above to successfully remove this lien.