What is a Lien?
A lien is a legal term that refers to a claim of legal right against assets that are used as collateral. A LIEN can be created by a lender or a court decision. A lien is utilized to provide a fundamental assurance on a major obligation. If the primary obligation is not completely met, the primary responsibility has the authority to confiscate the assets subject to the LIEN. The person who grants LIEN is known as a LIENEE, while the person who benefits from LIEN is known as a LIENOR or LIEN HOLDER.
A lien gives the lender the legal power to take and sell the guaranteed property or assets of a borrower who fails to meet the obligations of a loan. The owner cannot sell the property subject to the lien without the lien holder’s permission. A lien on property for a debt might be voluntary or agreed upon. Involuntary or legal liens, on the other hand, exist, in which a lender seeks legal action in the event of nonpayment. As a result, a lien is placed on assets such as real estate and bank accounts.
In the United States, a lien is defined as a wide spectrum of condemned property that encompasses various types of mortgage.
- Pledge: a form of bailment. The word refers to the act of donating the property that serves as the security. The vow is contained in ROMAN Legislation, which governs the majority of current European-based law. In general, it is used to highlight the most fundamental legal system.
- Lien contractual: A contractual lien a contract that gives a security interest in property to one of the party involved.
- Equitable levy: The equitable charge is just like a trust which allows lender to order the sale of the property.
- Mortgage: A legal agreement in which a bank, building society, or other financial institution loans money at interest in return for gaining title to the debtor’s property, with the proviso that the title becomes fraudulent upon the debtor’s payment).
In some countries with common law, the lien word refers to a specific type of security interest that allows the debtor or other lender to keep the dormant rights to the property (but not sell it) until the debtor or other lender is discharged. In contrast to how the phrase is used in the States, it refers to a strictly propriety kind of security interest in other countries; no question, when the propriety of the property is lost, the lien is freed. Of course, several countries with common law acknowledge a slightly irregular form of security interest known as a “equitable lien” that arises in unusual circumstances.
Types of Liens:
Despite their variations in terminology and use, there are numerous parallels between liens and the United States and other places in the common law world. There are several sorts of liens and lien holders. These are some examples of common liens:
- BANK LIEN: A lien is often given when an individual obtains a loan from a bank in order to purchase an asset. If the borrower is unable to repay the debt, the bank may execute the lien, take the assets, and sell them in order to repay the loan. (IMPORTANT: If the borrower repays the entire debt, the lien holder [bank] will remove the lien, and the borrower will now possess the assets free and clear.)
- JUDGMENT LIEN: A judgment lien is a lien that the court imposes on assets as a consequence of the trial. A judgment lien may assist a defendant in resolving a nonpayment lawsuit by liquidating the accused assets.
- MECHANIC LIEN: A mechanic lien is a lien that can be linked to real estate. If the owner fails to pay a contractor for services rendered. If the borrower fails to pay the contractor, the contractor should move to court and seek a judgment against the non paying party, after which property or assets can be auctioned off to satisfy the lien holder. Many service providers, including builders and dry cleaners, have the option to put a lien to ensure payment.
- REAL ESTATE LIEN: A real estate lien is the legal power to seize and sell real estate if a contractor’s obligations are not met. Some real estate liens, such as mortgage liens, are automatically imposed. When a person borrows money from a bank to buy a house, the bank places a lien on the property until the mortgage is paid off.
How it Works?
When a creditor makes a loan to a borrower, there is always the risk that the borrower may fail to return the debt on time or would not repay it at all. To avoid this, the notion of a lien is seen to be quite valuable. A lien grants the creditor the legal power to take and sell the collateral assets or property subject to the lien without the approval of the lien holder or borrower. A floating lien is granted when a lien is granted on inventories or any other unfixed property.
Some liens are also filed with the government in order to inform the public that the lienholder has an interest in the property or item in question. A public record of a lien informs individuals that a certain item or property is subject to a lien and that if they want to acquire that asset or property, the lien must first be freed since the asset or property cannot be sold with the lien. This is something that will assist all potential purchasers in learning about the financial history of the asset or property before making a purchase choice.
The concept of a lien is considered to be highly useful. A lien provides the creditor with the legal rights to seize and sell the collateral assets. Liens are voluntary and consensual like the lien on the property for a loan, there also exist involuntary or statutory liens.