What is a Claim of Lien?

A claim of lien typically arises when lenders, creditors or service providers take action to place a lien on a specified piece of property to ensure payment of a loan or for services provided. A borrower or debtor will usually agree to the placement of a lien on a property he owns so he can get a loan. A claim of lien arises when a service provider renders services and does not receive the property owner's payment for such services. In these instances, a person asserting the claim must follow certain legal steps to place a lien on the owner’s property, often a home.

A valid claim of lien or a security interest on a certain piece of property entitles a person or company to take legal action to force a party to relinquish such property through a foreclosure proceeding. The law typically will require the lien holder to sell the property to satisfy payment of a debt. The lien holder must sell the property in accordance with the law, which usually requires him to conduct an auction or make the sale in a commercially reasonable manner. If the sale of property generates proceeds greater than the debt, then the lien holder must give remaining proceeds to the property owner.

If a lien holder sells the property and the sale does not generate enough money to satisfy the debt, then the lien holder may obtain a deficiency judgment against the borrower for the outstanding balance. If the court enters a deficiency judgment, the lender will then need to take action to enforce that deficiency judgment against the debtor. If a lien claimant fails to follow the law in asserting his lien, then a court may declare the claim of lien unenforceable.

Many jurisdictions require a company making a claim of lien to provide notice of lien to the property owner. This alerts the property owner to the claim and affords him an opportunity to remedy the situation by making payment. If a company fails to provide notice as required by the law, the court will not enforce the lien. The notice requirement usually applies when the lien claimant is a sub-contractor and does not have a direct contract with a property owner.

The person making a claim of lien must comply with all legal requirements before placing an actual lien on the property. The law usually specifies what must be included in a notice of lien, how it must be served and when. A lien claimant will forfeit his rights to the value of the lien if there are defects in the notice of lien. Hence, it is imperative that a lien claimant carefully review the laws of his jurisdiction to ensure compliance.