What is a Lien?

What is a Lien?
What is a Lien? -Mortgage Rates Today

A lien is a claim or legal right against assets used as collateral to repay a debt. A lien can be established by a creditor or a judicial judgment. A lien is used to secure an underlying obligation, such as debt repayment. The creditor may be entitled to seize the asset that is the subject of the lien if the underlying obligation is not met. Liens are used to secure assets in a variety of ways.

Lien Definition

A lien is a type of security interest that is placed on a piece of property to guarantee the payment of a debt or the fulfillment of some other obligation. The lien is granted by the property owner, who is known as the lienee, and the person who benefits from the lien is known as the lienor or lien holder.

Consensual and non-consensual liens exist (also termed voluntary or involuntary in different states). A contract between the creditor and the debtor imposes consensual liens:

  • Mortgage
  • Chattel mortgage

 

How do Liens Work?

A lien gives a creditor the legal power to seize and sell a borrower’s collateral property or asset if he or she defaults on a loan or contract. Without the approval of the lien holder, the owner cannot sell the property that is the subject of the lien. A lien on inventory or other unfixed property is known as a floating lien.

A lien on a property for a loan, for example, can be voluntary or consensual. Involuntary or statutory liens, on the other hand, exist when a creditor initiates legal action for nonpayment. As a result, liens are put on assets such as real estate and bank accounts.

Real Estate Liens

If a contract is not performed, a real estate lien gives the owner the legal right to seize and sell the property. Some real estate liens are created automatically, such as in the case of a mortgage lien. When a person takes out a loan from a bank to buy a house, the bank sets a lien on the property until the loan is paid off.

Some real estate liens, on the other hand, are involuntary and non-consensual since they are the result of non-payment to a creditor or financial institution.

What Is a Lien on My House?

If you utilize a mortgage to purchase a home, the lender has the legal authority to seize your property if you default on the loan. Your home serves as security for the mortgage loan, and when you borrow money to purchase it, a mortgage lien is placed on it until you pay it off.

 

If you have any other questions regarding Liens contact the mortgage experts at 864-397-8500 or click Mortgage Rates Today!

Last Updated on 05/25/2022 by Mark Does

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