What is a Lien?

A lien is a creditor's legal claim of right in property held by a debtor. The lien serves to attach collateral (property) to a debt. In the event the debt is not paid, the lien allows the debtor to collect against the property (such as repossessing and selling it) to pay the debt.

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

A Little More on What is a Lien

Establishing a lien on property is the primary method by which individuals lending money or extending credit to a debtor secures the repayment of the debt. For example, I borrow money to purchase a vehicle. The lender records a lien on the vehicles title to demonstrate a claim of right in the automobile. If I fail to repay the loan in accordance with the loan terms, the lender has the legal right to repossess the vehicle. 

What are some types of Lien?

There are numerous types of lien. These liens differ based upon the method or reason by which the lien arose.

• Mortgage - A mortgage is a form of lien established in real property. In reality, it is a form of loan that is secured by the real property. The properly recorded mortgage serves a lien against the property. In the event that I fail to pay the loan in accordance with its terms, the creditor can foreclose upon the property.
• Mechanics Lien (or Workmans Lien) - This is a lien placed on property that is in the care of a service provider to that property. For example, I drop off my vehicle for repair. The mechanic repairs my vehicle. The mechanic has a lien on my vehicle until I pay for the repairs. If I fail to pay, the mechanic can exercise appropriate legal procedures for selling the vehicle to satisfy the debt.
• Materialmans Lien - This is a form of lien placed upon real property by someone who provides serves or material improvements to the property. These are common in the construction industry. For example, I contract with a general contractor to build a house. If I fail to pay for work completed by the contractor, he will record a materialmans lien on my property. This clouds title to the property if I try to sell it and could lead to foreclosure. The same is true if my general contractor fails to pay his subcontractors for work performed on the property. For this reason, many general contractors are required to secure a performance bond to cover this contingency.
• Tax Lien - A tax lien is a lien placed on the property of a delinquent taxpayer. Most often, these loans result from a failure to pay local real property taxes. They may also result from a failure to pay property taxes on personal property (such as equipment) or income taxes. The lien grants the government the right to foreclose upon and sell the subject property. More often, however, tax liens are often sold to third parties who have the ability to collect the lien by foreclosing upon the property.

Related Topics

• Secured Transactions Law (Intro)
• What is a Security Interest?
• Collateral 
• Pledge as Collateral
• Collateralize
• Cross Collateralization
• After-Acquired Collateral
• Unsecured Loan Definition
  
• Unencumbered Asset
• What is a Secured Creditor?
• Unsecured Creditor
• What are the benefits of security interests for creditors?
• Limited Recourse Debt
• Uniform Commercial Code - Article 9
  
• What are the common types of security interest in real property (land)?
• What is a mortgage?
• How does a security interest protect the mortgage holder?
• Lis Pendens
• Deficiency Judgment
• What is a Deed of Trust or Security Deed?
• What is a Land Sale Contract?
• What is a security interest in personal property?
• How does one establish a security interest in personal property?
• What is Perfection of a security interest?
• What are the methods of perfecting a security interest in personal property?
• UCC-1 Statement
• How does one establish a security interest in real property (land)?
• Register of Deeds
• What is Automatic Perfection of a security interest?
• What is a Purchase Money Security Interest (PMSI) in consumer goods?
• What is a Purchase Money Grace Period for a PMSI in non-consumer goods?
• How does one continue perfection of a PMSI in non-consumer goods?
• What is Temporary Automatic Perfection in Proceeds from the sale of goods?
• How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
• How does one perfect a security interest by Possession of the collateral?
• How does on perfect a security interest by Control of collateral?
• How does one perfect a security interest by Filing a Financing Statement?
• What authorization is required to file a financing statement?
• Where is the appropriate office to file a financing statement?
• Defeasance
• Continuation Statement
• What is Priority of a security interest?
• What role does perfection play in establishing the Priority of a secured party?
• What are the common conflicts arising as to priority of a security interest?
• What is the priority of parties secured by common law and statutory liens?
• Lien - Definition
• Blanket Lien Definition
• Unperfected Lien
• Possessory Lien 
• Non-Possessory Lien 
• Tax Lien
• Mechanics Lien Definition
• Construction Lien
• Cloud on Title
• What is the priority of a buyer of collateral that is subject to a security interest?
• What is required to be a buyer in the ordinary course of business?
• How does 9-320(b) protect consumers who purchase goods from other consumers?
• What is the Shelter Principle?
• What are the general Priority Rules for Conflicting security interests?
• Subordination Agreement
• Who has Priority in Proceeds from the sale of collateral?
• What is a secured party's priority in future advances to a debtor?
• What is the priority of a PMSI in goods (other than inventory and livestock)?
• What is the priority of a PMSI in inventory?
• What is the priority of conflicting PMSIs?
• What is the priority of security interests in fixtures?
• What is the scope of fixture priority rules?