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Lien
What Is a Lien?
A lien is a legal claim placed on a borrower’s property by a creditor as security for a debt. It gives the creditor the right to take or sell the property if the borrower fails to repay.
Liens are commonly used in secured lending.
Why It Matters
Liens protect lenders and affect a borrower’s ability to sell or refinance property. A property with a lien cannot typically be transferred without satisfying the debt.
How Liens Work
The process typically includes:
- borrower takes out a loan
- lender files a lien against the asset
- lien remains until debt is repaid
- if borrower defaults, creditor may seize or sell asset
- lien is released once the debt is satisfied
Example
A mortgage creates a lien on a home. The lender has a claim on the property until the loan is paid off.
Lien vs Collateral
- Collateral is the asset pledged.
- Lien is the legal claim on that asset.
FAQs About Liens
Can multiple liens exist?
Yes, priority determines repayment order.
How are liens removed?
By paying off the debt.
Do liens affect credit?
They may affect financial standing and borrowing ability.
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