Lien

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The right to maintain possession of property belonging to an individual until such time as a debt has been repaid is referred as a “lien.” A lender, service person, or other entity may place a lien against a piece of real or personal property to ensure they do not suffer a financial loss should the individual fail to pay. The lien on the property is released once the debt has been paid in full, or other obligation has been satisfied. To explore this concept, consider the following lien definition.

Definition of Lien

Noun

  1. A lender’s legal right to hold the property of another person until a debt is paid in full.

Origin

1525-1535 Old French ligāmen (to tie or bind)

Lienholder

The term “lienholder” refers to an individual or entity that has placed a lien on property of another to secure a debt or obligation. A lienholder has a right to the property that is the subject of the lien, as opposed to the party that has the right of possession. For example, if Maryann purchases a new car with financing from the bank, the bank becomes a lienholder, maintaining actual ownership of the car Maryann possesses. If Maryann fails to pay off the loan according to the terms of her contract with the bank, the bank, as lienholder, has the right to repossess the car.

Consensual vs. Nonconsensual Liens

Consensual liens are imposed through a contract made between the creditor and the debtor. Both parties agree to use the property to secure the interest of the creditor.

Nonconsensual liens grant creditors the right to place a lien on property by obtaining a court judgment against a party who has defaulted on a loan or other agreement made with the creditor. For instance, if an individual fails to pay property taxes on his home, a lien may be placed on the property by the state, even though he never signed an agreement to this arrangement.

Lien Types

A debtor in a secure loan or obligation has very different remedies available in the event the party defaults on the contract or agreement. Security in the form of a lien may be taken by a creditor for a wide variety of debts and obligations. A number of lien types are used to secure payment owed by debtors in different situations, from major purchases to services performed.

What is a Mortgage Lien

In most states, a mortgage is considered a lien securing the purchase of real property, rather than a complete transfer of ownership. The lender holding the mortgage may foreclose on the property and sell it to recover money lent to the homeowner in the event he fails to make payments as agreed. Real property is also subject to liens placed by local, state, and federal governments for property taxes and other assessments.

What is a Mechanic’s Lien

A mechanic’s lien is used by mechanics, contractors, repair persons, and suppliers to secure payment for work performed. This lien is an implied, non-consensual lien that gives the supplier of goods and services a legal claim against the property that has been repaired, improved, or upgraded in the event the property owner fails to pay. For example, Bob makes a down payment of $5,000 to a contractor for replacing his heating system. When the job is done, Bob refuses to pay the remaining $5,000 for the work. The contractor can place a mechanic’s lien against Bob’s home to ensure payment.

What is a Tax Lien

Issued by a local, state, or federal government, a tax lien may be placed on real property for delinquency on property taxes, income taxes, estate taxes, and a variety of other assessments against the property.

What is a Equitable Lien

Giving an individual or entity rights to a specific property or fund, proceeds of which are to be applied to the repayment of a debt, an equitable lien does not require possession of the property or fund. An equitable lien is not recognized as such by law, but may be conferred as an equitable remedy. Equitable liens often take place under one of four circumstances:

  1. When an individual occupies and makes improvement to land, believing in good faith, that he is the true owner of the land;
  2. When one or more joint owners of a property pay equal expenses towards improvement of the land in a situation described above;
  3. When a person granted tenancy for life makes permanent, beneficial improvements to property of an estate;
  4. When land or property is transferred pending payment of a debt, legacy, or annuity.

What is a Judgment Lien

A judgment lien is created in the event a party who has filed a lawsuit is awarded a judgment, creating a lien against the other party’s property. This is a nonconsensual lien that may be placed against any real or personal property owned by the losing party.

Release of Lien

Once a party has satisfied the conditions upon which the lien was taken, such as paying off a debt or other obligation, the lienholder must file a document with the court releasing the lien. The lien release legally cancels the lienholder’s right to the property, and helps ensure the lien stops being reported to credit agencies.

Lien Waiver

A lien waver is a document filed with the court by the holder of a mechanic’s lien, such as a contractor, subcontractor, or supplier, stating that payment has been received in full and that they have no future claim to the property. There are four common types of lien waivers:

  1. Conditional Lien Waiver and Release on Progress Payment – discharges the lienholder’s rights through a specified date, provided payments have actually been received.
  2. Unconditional Lien Waiver and Release on Progress Payment – discharges the lienholder’s rights through a specified date, with no stipulations.
  3. Conditional Lien Waiver and Release on Final Payment – terminates all rights of the lienholder upon receipt of final payment, with certain other provisions.
  4. Unconditional Lien Waiver and Release on Final Payment – terminates all rights of the lienholder upon receipt of final payment.

Tax Lien Certificate

A tax lien certificate is a certificate of claim against a property on which a tax lien has been placed. Tax lien certificates are often sold to investors by municipalities in which the property resides through auctions. The certificate enables the investor to collect the unpaid taxes with interest from the property owner for a specified period of time.

Failure of a Lender to Issue a Lien Release

A lender is obligated to send a notice of lien release form to the court within 30 days of the debt being paid in full, or other obligation being satisfied. The lien release form should be filed before the property may be transferred. For example, a lien has been placed against Jim’s truck. He sells the truck to Deborah, who will need to obtain a copy of the lien release form before she can transfer the truck to her name and obtain a new title. In the event a lender refuses to provide a lien release, the borrower may be entitled to file a civil lawsuit to reclaim clear title to the property.

Purchasing Property After Repossession or Foreclosure

In a case in which a bank or lender foreclosures on a property that was in default, the property may be sold to recover monies owed. In this case, the lender has obtained satisfaction of the debt, and the lien may no longer exist. If the owner of a property in default, or on which there is a tax lien, simply walks away from the property, or sells the property to another private party, the lien remains when the property is sold. The new buyer may then find himself subject to the lien on the property. This is why it is imperative that a lien search be conducted before buying real property. Liens are subject to a statute of limitations defined by state law.

Lien Search

Anyone interested in purchasing real or personal property can conduct a lien search to determine whether a lien has been placed against the property. Such a lien would affect the ownership interest in purchased property, making this vital information for a potential buyer. Liens are a matter of public record, and a search may be conducted through the county recorder or clerk using the name of the property owner and address of the property. A title company may be used to search for liens on real property.

Related Legal Terms and Issues

  • Borrower – A person who obtains or receives a loan with the promise of repaying it.
  • Civil Court – A court having jurisdiction to hear and make decisions in civil lawsuits.
  • Claimant – A person making a claim against something or someone, especially in a court of law.
  • Creditor – A person or entity that is owed money by another person or entity.
  • Debtor – A person or entity that owes another person or entity a sum of money.
  • Default – A failure to fulfill an obligation such as repayment of a loan.
  • Final Judgment – A court’s last action to settle a civil suit.
  • Jurisdiction – The official authority to make legal decisions and judgments; a law enforcement agency’s geographical area of authority.
  • Lender – A person or entity who loans money or something else to another person or entity.
  • Public Record – Documents or other types of information that are not considered confidential.
  • Secured Interest – Interest created by agreement or by law, given to secure payment of a debt or performance of an obligation.