What Is a Lien?

If you’ve ever obtained a car loan or home mortgage, your lender likely took out a lien against this property.

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In basic terms, a lien is a claim a lender or another organization has against someone’s personal property. It’s important to understand what liens are and how they can jeopardize your ability to sell that property.

It’s important to start by understanding exactly what a lien is. The legal lien definition is “any official claim or charge against property or funds for payment of a debt or an amount owed for services rendered.” In most cases, a lien is either part of a mutual contract or ordered by the courts through a judgment.

What Is a Lien, and How Does a Lien Work?

Understanding what a lien is is just the first step. You must also understand how liens work and how having a lien against your property can impact you. For instance, as a claim against your property, a lien could hinder your ability to sell that property or even put you at risk of losing it. How a lien works depends on whether it’s a voluntary or involuntary lien.

Voluntary Liens

As the name suggests, a voluntary lien is one both parties agree to. One of the most common types of voluntary liens is a bank lien. Often, a lender will put a lien against the title of your home as a type of collateral. You won't be able to sell your home until the debt is paid in full. If you do sell your home before the lien is removed, you must pay the loan in full before receiving any profits from the sale. Alternatively, if you fail to make regular monthly payments, the lender can use the lien to seize your property.

This type of lien is also common with auto loans, personal loans, HELOCs and other loans that require some form of collateral.

Involuntary Liens

On the other hand, involuntary liens aren't mutually agreed upon. Instead, a creditor or lender goes to court to obtain a lien due to an unpaid debt. If you fail to pay this outstanding debt, the creditor or lender may be able to claim your property.

For example, if you fail to pay your property taxes, your local authorities could request a lien against your property. If your tax bill goes unpaid for too long, your local government can take over your property and sell it. Judgment liens, mechanic’s liens and child support liens are all examples of involuntary liens.

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Who Can Place a Lien on Property?

Any party owed money can request a lien on a type of property. This includes individuals, creditors, lenders, banks, credit unions and other businesses. Only those who have an official contract signed by both parties that includes the details of the lien can obtain a voluntary lien.

Those without a contract in place must go through the court system to request a lien. To obtain a lien, the creditor or lender must prove you owe the money and the debt is still outstanding.

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What Are the Different Types of Liens?

There are several different types of liens.

• Bank lien: Lenders use bank liens as collateral when issuing mortgages, auto loans and personal loans.
• Real estate lien: A creditor or lender can request a lien against your real estate property when obtaining a loan or owing an outstanding balance.
• Tax lien: If you owe federal, state or local taxes, the corresponding authority can request a lien against your personal property.
• Judgment lien: The courts can issue a judgment lien if a creditor or lender can prove they’ve been unable to collect on an outstanding debt.
• Mechanic’s lien: If you fail to pay a contractor for the work they did on your home, the company may be able to obtain a mechanic’s lien against your real property.
• Child support lien: Failing to pay child support could result in a lien against your personal and real property.

It’s important to understand how liens work before obtaining a home mortgage, auto loan or other loan that requires collateral. You also should be aware of how a judgment lien can impact your ability to sell your home or even put you at risk of losing your property.