What is a Lien?

If you have ever attempted to sell a or purchase home, you might be informed with property liens—which are linked to its mortgage. However, liens can additionally be put on other kinds of property, including vehicles or possibly work done on your home.

What is a lien? And how do you get one taken off? Here’s a breakdown of the way liens work.

Key Take Aways

A lien is a legal claim towards personal property by a lender to fulfill a debt.
Liens can be voluntary or involuntary.
Liens can make it more difficult to borrow money.

A lien is a legal claim against any kind of property that can be used as collateral to guarantee the paying back of a debt. Liens give the lender the right to sell the borrower’s property should they fail to repay the dues they owe.

A lot of liens are voluntary liens meaning both the borrower and the lender enter into the contract voluntarily. However, there are also involuntary ones, which happen without the borrower’s permission. These are usually the result of a legal dispute. For instance, if you owe taxes, the IRS might file a federal tax lien toward your property.

Types of Liens

There are many kinds of liens. Here are four general kinds:

Property liens
Judgment liens
Tax liens
Mechanic’s liens

How do Liens Work?

Below is how liens work, using a mortgage lien as an example.

When getting a mortgage to buy a home, the lender could put a mortgage lien on the home. This lien is voluntary and provides the lender with the right to take back the home should you fail to make your payments.

If you fail to make your mortgage payment, the mortgage lender might foreclose on your home and collect the unpaid debt by means of the sale of the property.

In relation to a mortgage lien, the sale of the property might not be sufficient to cover the unpaid debt linked to the lien. In this scenario, the lender might be able to assign the lien to another asset or property that the borrower owns.

How do You Get a Lien Removed?

Usually, the only way to get a lien removed is to pay the off the debt that’s linked to it. In the instance given above, that could either be by paying off the mortgage completely or permitting the home to be sold through foreclosure.

In situations in which the lien is placed against the law or the lender and borrower take issue on whether the repayment has been finished, a lien might be removed in court.

However, it’s important to not forget that removing a lien does not necessarily mean the debt is removed too. Whereas liens don’t show up on credit reports, not paying debt can adversely impact your credit scores. And that could make it difficult to be eligible for loans and credit at some point in the future.

Liens in a Nutshell

Liens are a legal device that lenders use to protect their investment. Whereas it’s normal to have a lien as part of a mortgage or vehicle loan, declining to pay the debt linked to the lien can have repercussions on your personal finances. It might also make it harder for you to sell your property or take out other loans down the road.