It is a legal right or claim for an asset that works as collateral for a debt. A legal judgement can establish a lien. It is like a guarantee for an underlying obligation like loan repayment. If the objection is not satisfactory, the creditor can seize the asset subject to the lien. There are types of liens that are useful to secure assets.
Therefore, the lien is a legal right that the lender can use to sell your property if you fail to meet the contractual obligations. If you wish to get rid of the lien, you must pay the loan for the property or asset in time.
There are liens and its holder. It can be used by financial institutes, small businesses and governments. Some common types of liens are:
a) Bank lien – In this lien, a person will take out a loan from the bank to purchase an asset
b) Real estate lien – This is a legal right to sell the real estate property in case the property isn’t fulfilled. Some liens can be put in place, like mortgage lien. When taking a loan from the bank to purchase a home, the bank puts a lien on the person until the mortgage is paid off.
c) Judgement lien – It is a kind of lien that is placed on an asset by the court and comes as a result of a lawsuit. It works as a defendant to liquidate the accused asset.
d) Mechanic’s lien – This lien can be connected to real property and when the owner fails to pay the money to the contractor for the services. In the debtor fails to pay, the contractor would go to the court and ask for the mechanic lien to pay the lien holder. The service providers use the lien as a security, including dry cleaners and construction companies.
e) Tax lien – These liens help deal with taxation, allowing a tax authority to put the lien on the taxpayer property. The lien also affects the ability of the taxpayer to sell their existing asset and get credit.
When investing in a house using a mortgage, the lender has some legal right to seize property if you fail to pay for the mortgage. This is because the house mainly works as collateral for a mortgage loan, and when borrowing money to buy the home, it becomes a mortgage lien for your home until you can pay the mortgage off.
Lien attached to a property tells others that one has to pay money to its creditor on time. Therefore, before you sell the property, you should pay off the lien. In this, the lien is mainly attached to real estate and personal property in some cases. One has to check on the available lien rights by law before they use the lien right on the property. Every creditor cannot use a lien on their property as they have to consider its category before applying a lien for it.
