At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
A lien is a legal claim or a "hold" on some type of property, whether personal or real property, making it collateral against money or services owed to another person or entity. Liens usually exist in situations such as second mortgages, loans against vehicle titles or money loaned against any other substantial items owned by the borrowers. This claim might keep a borrower from selling property, or at least prevent him or her from transferring the title to the property until the debt or obligation is satisfied. In some cases, a person or entity that is owed money or services might use legal means to place a lien on the debtor's property or a portion of it.
Sometimes, property that carries a lien can be forced into sale by the lender to collect what is owed, if the loan is in default. If the borrower decides to sell the property, the lienholder must be paid before the title will be cleared for transfer to the buyer. In some cases, the lienholder is permitted to take possession of the property until the debt or obligation is satisfied but cannot sell it.
Placing and Removing Liens
Liens might be agreed to by the debtors, or they might be imposed upon debtors through legal means. To place a lien on property, the person or entity that is owed money or services typically must go through the appropriate government office and pay a fee. The debtor usually can remove the lien by satisfying the original debt, repaying the fee that was charged when the lien was placed and paying an additional fee to have it removed.
Types of Liens
There are different kinds of liens, and some of the most common are mechanic's liens, also known as construction liens. These liens are put into place when property owners owe money for materials or labor that improved their property in some way. This could include repairs, maintenance and new construction, as well as things such as landscaping and renovation.
Other common types of liens include maritime liens on boats and other vessels; agriculture liens on farming equipment; and tax liens imposed by governments because of unpaid taxes. Liens also can be imposed by landlords, warehouse owners or hotels for unpaid rent or fees. Hospitals, healthcare providers, insurers and other service providers also might impose liens to collect unpaid fees.
When purchasing real estate, it is important for a buyer to make sure that there are no liens that might keep him or her from securing a clear title to a piece of property. This is accomplished by conducting — or hiring a company to conduct — a title search or "abstract of title." This simply means developing and examining a collection of publicly recorded documents regarding the history of the property.
A title search usually will indicate whether a lien exists and whether the seller is the legally recognized property owner. It also should indicate the exact legal description of the property and provide details regarding a lien or other encumbrances against the title. This is especially important if creative financing techniques are being used to purchase the property, such as owner financing or a land contract. Otherwise, after the agreed-upon price has been paid, the buyer might discover that he or she still does not own the property free and clear.