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What is a lien?

One of the topics we cover a lot in our blog is the fact that you, as a borrower, have numerous rights. Those rights protect you from creditor harassment and let you seek options for relief when debt becomes overwhelming. Creditors also have rights, and one of those rights can be exercised in the form of a lien.

A lien lets creditors sell what is known as collateral property in order to recover losses should someone default on a loan. For example, if you borrow money from a lender to purchase a motor vehicle, then the creditor has a lien against that vehicle until you pay off the total balance. Should you fail to make payment on the loan or seek legal financial relief in the form of bankruptcy, then the creditor can go through a legal process, enforce the lien and retake the property.

Creditors can also seek liens against certain properties even when they didn't loan you the original funds to buy the properties. Certain creditors might seek a judgment against you for unpaid balances, and, in some situations, the judgment might let them seek a lien against your home or other property. Tax agencies can also seek liens against property.

One specific type of lien is known as a mechanic's lien. If a contractor performances maintenance or work on your home or other property, and you fail to pay the invoice related to those services, then that contractor can seek a lien against the property.

A lien usually means if you sell property, the entity holding the lien receives payment before you do. Liens can also seriously impact your credit score. If you are in a situation where you can't pay your bills because of overwhelming debt, medical issues or other crisis, working with a legal professional on options such as bankruptcy can save you from creditors who might eventually seek liens against you.

Source: Investopedia, "Lien," accessed Dec. 16, 2015

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