What is a Lien?

Liens and other financial claims have become more prevalent these days as a result of recent economic circumstances. Here’s a look at what is a lien.

What is a Lien

A lien is a legal claim on an asset that allows the lien holder to take possession of the asset if certain conditions aren’t met. Houses and cars are common types of property that have liens. Until the mortgage or auto loan is repaid, the lender has a lien on the property. The lien allows the lender to foreclose or repossess the property if the property owner falls behind on payments.

If your property has a lien on it, the lien holder can sell it at anytime to satisfy payment for your debt.

Before you can sell property and transfer the title to the buyer, you must own the property free and clear. You must have any liens removed from the title before you can sell the property.

Common Types of Liens

Some liens are placed on your property automatically as a condition of purchase. These lien holders have a legal right to take control of your property if certain conditions aren’t met. For example, when you buy a home, your mortgage lender will place a lien on the house until you repay the mortgage. Similarly, your auto lender places a lien on your card until you pay off your car loan.

Other types of liens are placed on your property because you failed to pay a debt. For example, if you fail to pay your federal or state taxes, the revenue department could file a tax lien on your property. If you don’t pay the debt, the lien holder can liquidate the property and use the proceeds to pay off the debt.

Tax liens are reported to the major credit bureaus – Equifax, Experian, and TransUnion – and are included on your credit report. These unpaid liens will hurt your credit rating and can impact your ability to get credit cards and loans in the future. If you have a Federal tax lien, the IRS can place a claim on all your assets until the debt has been repaid.

Mechanic’s liens can be placed on your home if a contractor, subcontractor, or supplier hasn’t been paid for work done or materials provided. If the debt goes unpaid, your home could be foreclosed. A mechanic’s lien shouldn’t come by surprise. Your state’s law may require the contractor or supplier to provide you with advance notice if they haven’t been paid and will need to file a lien against your property.

A judgment lien is the result of a lawsuit in which the judge ruled against you. Before a judgment lien is placed on your property, the creditor typically has tried
(unsuccessfully) to get you to pay your debt. You might have to pay interest on the judgment lien. A judgment lien will be reported on your credit report.

How to Remove a Lien?

Liens are typically placed on your property as a condition of repayment. Naturally, you can remove a lien on your property by fully paying off the loan or debt attached to the asset. If you have a lien placed on your property because of an unpaid debt, you may be able to have the lien released by simply making payment arrangements.

Once a lien has been placed on your property, it’s up to the lien holder to decide when to remove the lien. You must satisfy the lien holder’s requirements and receive a lien waiver to remove a lien from your property.

Even when the lien is lifted from your property, it may still be included on your credit report for up to seven years. A paid lien looks better on your credit history. An unpaid lien, on the other hand, can keep you from getting credit cards, loans, and even jobs.