What Exactly Is a Lien?

Lending money is dangerous, hence why lenders frequently safeguard their investments using liens, which are legal documents that enable lenders to reclaim a piece of property if the borrower fails to repay the loan. If the lender secured the loan with a lien, you are unable to make your monthly payments, and the lender has attempted to pay a debt, they can normally sell the assets you put up as collateral to offset their loss.

Since a lien serves as a vehicle for securing business assets to cover a debt, this can also be put on loans when they are first carried out.

What is a lien, and how does it work?

A lien grants the lienholder ownership of the property. It enables the possessor to forcibly sell the property in order to pay off their obligations. Because real estate is an illiquid asset, this is the only means to obtain a financial payout.

If a property has many liens on it, the proceeds of the sale are distributed based on when every lienor recorded their lien. The oldest/first lien holder gets paid first, followed by the rest. In rare cases, certain lien types, such as property tax liens, may take precedence and disregard the preceding priority rule.

Types of liens

Loan non-payment is a regular problem that can result in liens being put on your possessions. Here are some of the many types of liens you could come into.

1. Tax lien

When you do not pay your taxes, this form of lien is imposed on your property. The federal, state, or local government obtains a significant stake in your property or real estate as one of the methods the Internal Revenue Service collects delinquent taxes. Note that you must pay off your tax bill before you can pay off your mortgage.

2. Consensual liens

When you take out a loan and put up a property as collateral, you agree to a lien being placed on your property. When looking for bank loans, this is a typical alternative.

3. Judgment lien

Typically, these liens are the consequence of a litigation. If you do not repay your obligation, a court order grants a creditor, lender, or lien holder the legal power to seize your personal property. This is an involuntary lien, which means you do not have to consent to it.

4. Mechanic’s lien

Even though this is a more industry-specific lien, it is critical to understand how it operates. Contractors are often the lien holders in this situation. A mechanical lien can be imposed if you do not pay for work done on your property, such as your home, office, or warehouse. If a general contractor completes work on your property but you fail to pay them, the contractor may establish a lien on your land.

How can I have a lien removed?

Liens can be dismissed in two ways: by disputing the lien in court or by demonstrating that it is invalid. The person or entity that established the lien is usually the only one who has the authority to remove it. There are, however, certain exceptions.

These approaches can be used to settle the lien:

• Paying back the obligation owing to the lienholder.
• The loan amount is settled or negotiated. The creditor may also wish to put the debt behind them and may bargain for a lump sum payment now.
• Contact the lienholder to settle any fraudulent or invalid liens. In the case of used things, this is conceivable. Often notifying the lienholder is all that is required to resolve the situation.
• In the event of a dispute, legal action may be taken. This is a tough procedure in which the lien release will be decided by the court or other appropriate body.
• Some liens dissipate after a certain number of years, examining the legitimacy of a lien might be another option for settling a debt.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.