QandAs: Loans

What is a Lien?

Answer:
If you finance a home, automobile, or other

personal property, another party has a legal claim or lien on the property. Liens are common on most large purchases. Although the actually buyer owns the property, the company or financial institution that loans funds can make a claim on the property if the borrower defaults on the loan agreement.

Liens benefit the lender. This type of security interest ensures that the borrower will make timely payments to the lien holder.

There are many types of liens in the United States. Consensual liens refer to a contract between a creditor and debtor, and these include home loans, automobile loans, and other security interest loans. Non-consensual liens typically involve tax liens, attorney liens, judgment liens, and mechanic liens. In this instance, creditors can impose a lien to secure payment for a specific item.

Occasionally, a borrower defaults on a loan contract. If unable to repay funds, the lien holder has good reason to repossess or reclaim the property. At this time, the lien holder will sell or auction the personal property. The goal is to recoup their investment. If proceeds from the sell or auction are less than the original loan balance, the previous debtor is accountable for the remaining balance.


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