Law
Fact-checked

At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What are Lien Rights?

Christopher John
Christopher John

Lien rights are the rights of a lender or creditor to get a foreclosure on a specified piece of property to recover money owed by a debtor. Foreclosure is the legal process used to force a debtor to relinquish a piece of property. The law will then require that the creditor sell the property, in accordance with certain statutes, to satisfy the payment obligation. Lien rights may arise without the consent of a property owner, such as in the case of tax liens, or with owner consent, such as in the case of a mortgage.

Lien rights, sometimes referred to as a security interest, simply entitle a lien claimant to force the sale of a specified piece of property to receive payment from a borrower. If a person borrows money from a bank to purchase a car, the bank will place a lien on the car as protection against a borrower’s failure to make payments. If the borrower does fail to make payments, the bank can then enforce its lien rights to repossess the car, and sell the vehicle to recover the money it loaned. If the money from the sale is not sufficient to cover the outstanding balance of the loan, the bank can obtain a deficiency judgment against the borrower for the remaining balance. The lien on the car operates as a security interest and helps the bank to minimize its losses.

Lien rights refer to a lender's ability to foreclose on a property to recover money owed by a debtor.
Lien rights refer to a lender's ability to foreclose on a property to recover money owed by a debtor.

Liens are important because they allow people to borrow the money needed to pay for property or services. Banks, creditors and service providers must have a sense of confidence that a borrower will repay a debt. The confidence they desire often comes from the lien rights afforded by the law. If a bank feels confident that it will have recourse to recover its money, it is more likely to make a loan to a borrower. The same applies to various other types of services providers that are able to obtain lien rights on a specified piece of property as a means of security for providing certain services.

If a loan amount on a mortgage is not repaid, a bank can exercise its lien and repossess the house.
If a loan amount on a mortgage is not repaid, a bank can exercise its lien and repossess the house.

Each jurisdiction specifies the legal steps a person or business entity must take to secure lien rights. The legal steps vary depending on what type of property is the subject of the lien. Failure to follow the legal steps established by the law could result in a court ruling the lien rights invalid.

For example, if a creditor places a lien on a piece of personal property, the law may require that the creditor record its lien with the state to serve as notice to all that a lien or a security interest is on the property. This entitles the creditor to have first priority rights to such property. The creditor forfeits these rights by failing to record the lien as required by law.

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Lien rights refer to a lender's ability to foreclose on a property to recover money owed by a debtor.
      By: Andy Dean
      Lien rights refer to a lender's ability to foreclose on a property to recover money owed by a debtor.
    • If a loan amount on a mortgage is not repaid, a bank can exercise its lien and repossess the house.
      By: Pefkos
      If a loan amount on a mortgage is not repaid, a bank can exercise its lien and repossess the house.
    • Foreclosure forces a debtor to relinquish a piece of property.
      By: Andy Dean
      Foreclosure forces a debtor to relinquish a piece of property.