How Does a Lien Work?

How Does a Lien Work?

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What is a Lien?

A lien is a legal claim on another person's property, be it real estate or personal property. These are most often placed on people's property when said property is used as collateral for mortgages or loans. When money or services are owed to a creditor, that creditor can place a lien on the debtor's property as a way of ensuring that they are able to reclaim their investments. That's the simple part. The complicated part is that there are many different types of liens, each with their own rules and regulations. They can however, be divided into two groups; consensual or voluntary liens, and non-consensual or involuntary liens.

Read More: What Is a Statutory Lien?

How Does a Consensual Lien Work?

Consensual liens are imposed as a result of a previous contract drawn up between the debtor and the creditor. This is what is commonly used in loans and mortgages. For such a lien to be in effect, the debtor needs to have agreed to it upon the time the loan was made. An equitable lien means that the creditor does not have the right to claim the property as his own. Instead the debtor is required to sell that property and immediately pay the creditor what is owed. This allows the debtor to keep whatever money is left over once the creditor has been paid and the lien has been lifted. A non-equitable lien means the creditor can take the property in question and do what he/she wishes with it. This means that if the property is worth more than what was owed, it is to the creditor's benefit. If the property is worth less, it is to the creditor's detriment and he will not be able to attempt to regain the remainder of the lost funds from the debtor.

How Does a Non-Consensual Lien Work?

The majority of non-consensual liens are within purview of the government. Primarily should a citizen neglect to pay their taxes, the lien may be placed on the citizen's personal and real estate property, without the citizen's consent. In such cases the lien may be lifted by paying all due back taxes and penalties. If the lien should not be lifted within a specified time limit, the government is within their right to claim the liened property for their own.