Lien

Understanding liens

A lien is a legal claim that a creditor holds on a debtor’s property to secure payment of a debt or performance of an obligation. If the debtor defaults, the lien holder may be able to seize or force the sale of the asset to satisfy the debt. Liens affect the ability to sell or refinance property until they are resolved.

Key takeaways

• A lien gives a creditor a legal interest in property (real estate, vehicles, bank accounts, inventory, etc.) as collateral.
• Liens can be voluntary (e.g., a mortgage) or involuntary (e.g., a court judgment or tax lien).
• Liens are often recorded in public records so third parties can see existing claims on an asset.
• Priority matters: senior liens get paid before junior liens in a sale.
• Common remedies to remove a lien include paying the debt, negotiating a settlement, or challenging the lien in court.

How liens work

• Creation: A lien arises by contract (voluntary) or by law or court action (involuntary).
• Public notice: Many liens are filed with county or state offices; this notifies buyers and lenders that the property is encumbered.
• Enforcement: If the debtor fails to cure the default, the lien holder may foreclose, repossess, or seek a judicial sale (e.g., sheriff’s sale) to recover owed amounts.
• Bankruptcy: Bankruptcy can discharge underlying debts, but certain liens may survive and remain attached to the property unless specifically avoided.

Common types of liens

Mortgage / bank lien

A lender takes a lien on real estate or a vehicle as collateral for a loan. If the borrower defaults, the lender can foreclose (real estate) or repossess (vehicle). The lien is released when the loan is paid in full.

Judgment lien

Placed by a court after a creditor wins a lawsuit. It attaches to the debtor’s assets and remains until the judgment is satisfied or otherwise resolved.

Mechanic’s lien (construction/service lien)

Allows contractors, subcontractors, suppliers, and sometimes other service providers to claim unpaid work or materials against real property. It can lead to foreclosure if not paid.

Tax lien

Statutory lien imposed by a government for unpaid taxes (income, property taxes, etc.). A federal tax lien attaches to all the taxpayer’s property and rights to property and can severely restrict the ability to sell or borrow against assets.

Floating lien

Used mainly in business lending; it covers changing assets such as inventory or accounts receivable. It “floats” over the pool of assets until fixed by certain events (e.g., default).

Junior (second) lien

A lien recorded after a prior (first) lien on the same asset. Junior lien holders are paid only after senior lien holders are satisfied in a sale or foreclosure.

Priority and title searches

When buying or financing real property, lenders conduct title searches to identify existing liens. Priority is typically determined by the order of recording (first recorded = first priority), though statutes or specific lien types can alter this order.

How to remove or resolve a lien

• Pay the debt in full — the lienholder provides a release or satisfaction document for recording.
• Negotiate a settlement or payment plan with the lienholder.
• Bond off the lien — post a surety bond in some jurisdictions so the property can be sold while the dispute continues.
• Dispute or challenge the lien — if the lien is invalid, you can contest it in court.
• File bankruptcy — may discharge the underlying debt, but additional steps may be needed to remove certain liens.

Always obtain and record written evidence that a lien has been released after resolution.

Frequently asked questions

Q: What does a lien mean for my property?
A: It means a creditor has a legal claim on the property; you generally cannot sell or refinance without addressing the lien.

Q: Why is there a lien on my house?
A: Common reasons are an outstanding mortgage, unpaid property taxes, contractor claims (mechanic’s liens), or court judgments.

Q: How do I get rid of a lien?
A: Typically by paying the debt, negotiating a release, bonding off the lien, or successfully contesting it in court.

Q: What is a floating lien?
A: A lien on assets that change over time (like inventory). It becomes fixed when certain events occur.

Q: What is a second lien?
A: A junior lien recorded after the first mortgage or lien; it has lower priority in repayment from sale proceeds.

Bottom line

Liens are common legal tools creditors use to secure payment. They affect ownership rights and can block sales or refinancing until resolved. Understanding the type, priority, and remedies available lets debtors and buyers manage risk and take appropriate steps to clear encumbrances.