Lien

Definition

The term lien is used to describe the legal right given to a lender to take, or sell, property of a debtor as security or collateral against payment of the debt. Once placed on a property, a lien will remain in effect until the loan is paid in full or satisfied.

Explanation

Generally, there are two parties to a lien, the owner of the property is known as the lienor, while the person who has claim to the property is known as the lienee.  Placing a lien on property reduces the risk to the creditor (lienee).  It is a way to ensure the borrower (lienor) repays the loan on time.

As is the case with a deed, a lien can take on several specialized forms:

  • Assessment Lien:  municipalities making improvements to property may seek an assessment lien to ensure future tax payments will be used to pay for the improvements.
  • Mechanic's Lien:  also referred to as a contractor's lien, protects those individuals supplying labor and / or materials to improve a property.
  • Judgment Lien:  a lien placed on an asset to ensure payment of a legal claim against another party.
  • Tax Lien:  a legal lien on a property for taxes due, sometimes sold at county auction.

There is also a hierarchy for the payment of liens as described below:

  • First Lien:  takes precedence over all other liens or claims to a property.
  • Junior Lien:  subordinate in priority relative to other liens.

Related Terms

deed, title search, title insurance, credit report