If you've gotten a loan, you may be familiar with the term "lien," but what does a lien do, and what happens when the lienholder tries to cash in on their investment? Keep reading to find out.
A lien is a legal claim or secured interest in a property. It can be voluntary through the property owner or involuntary through the court or a government agency. In most cases, this is associated with a loan or financial obligation, where the lienholder has the power to put a lien against you.
Another important thing to remember is that liens are used to secure debts. You can think of a lien as collateral to cash in on a debt. If a property owner sells you a house and you get a loan, the bank can issue a lien against you for not paying the mortgage. If a debt is secured, the creditor can activate the lien and demand repayment.
Types of Liens
To better understand what liens are, it's important to look at the different types of liens you might encounter.
- Mortgage liens are some of the most common legal claims. When you take out a loan to buy a house, the bank will require you to sign a deed of trust that says you agree to pay off the loan over time. Should you take out a second mortgage from a different lender, they will put a secondary lien on the property.
- Bank liens are often a condition of loans. Whether you need money to start a business or purchase a vehicle, if you go to the bank for a loan, they will put a lien on the property you are buying with it. For example, if you fail to pay back your car loan, the bank can issue the lien and seize your vehicle.
- Mechanic's liens are less common, but if you hire a mechanic or contractor and fail to pay the bill, the contracting company can go to court and issue a lien against you to forcibly collect the money they are owed. In this case, a lien is like a court order or warrant; instead of an order for your arrest, it's a warrant for your money.
- Tax liens are often created by law instead of a contract. Paying your taxes is your civil duty, but if you don't pay state or federal taxes, the government or municipality can put a lien on your property to recover the tax amount. The Internal Revenue Service (IRS) can also issue a lien against your property if you show no indication that you will pay back your taxes.
In many of these situations, a lien means that the creditor or lienholder can take your property if you fail to hold up your end of the bargain. Tax liens, in particular, can have some complicated consequences. Always read the fine print on contracts and agreements so you can be sure that you fulfill the obligations and avoid a lien!
Removing a Lien
While you can remove a lien, the process is complex and should NEVER be done without a lawyer present. There are two ways to remove a lien: contest it in court or resolve it voluntarily.
If you decide to take the matter to court, you must be prepared to prove that it is invalid. You have to present evidence and documentation that clearly shows that the lien was not a part of any written agreement. If the lienholder can't prove otherwise, the lien is released.
You don't have to take your case to court. You can resolve the lien by following these general steps:
- Review the terms and figure out how much you owe
- Submit payment to the lienholder
- Create a lien release document for the lienholder to sign
- Have the lien release recorded and submit to the court
While you get to avoid going to court, resolving a lean isn't easy. Some liens are more complicated than others and have confusing terms or vague language that make them hard to understand. It also takes tremendous effort to research the lien and pay it off, which is why it's so important to have skilled legal professionals on your side.
Legal Counsel You Can Trust
At Buchalter & Pelphrey Attorneys At Law, we understand how frustrating legal matters can be, which is why we offer comprehensive counsel for a variety of concerns from liens to loans and bankruptcy support, our team is here for you.
Contact our firm today to get started!