What is a Property Lien?

A property lien is an interest or claim charged against a property by a lender to secure the repayment of a debt. In the worst-case scenarios, the lender can actually take control of the property. The most common forms of property tax liens are mortgages. If a borrower were to default on a debt, the lien on the property can then be enforced. In some cases, the lien can be enforced immediately, but in other cases the lender may need to wait until property ownership changes hands.

In case of a mortgage lien, the lender holds the title to the property until the loan is dissolved. This only happens once the terms of the loans have been paid in full. At that point, the title of the property will be transferred to the borrower. If the terms of the loan have not been met, the lender can use the property lien to recover as much money as possible through the foreclosure process.

In some cases, it is possible to enforce or impose a lien on a property in cases where payment is not rendered for services or products, which is known as a mechanic's lien. The claimant, in such a case, must prove the money is owed, often by filing the claim with an appropriate court with jurisdiction over the matter. If the respondent is found liable, and unable or unwilling to pay, the claim could be paid with money from a property transfer transaction as a property lien that must be cleared up before ownership can change hands. The sale of the property may even take place without the owner's consent.

The amount that can be collected through any property lien is generally limited to the amount of owed money still outstanding. In some cases, court costs or other costs of collection could be added, if applicable. Thus, the property lien can actually end up costing a certain amount money beyond that which is already owed.

If the value of the real estate or other property is not sufficient enough to cover the property lien, the lender has a couple of options. It may simply write off the remainder of the balance, or it may decide to continue pursuing collection through a law suit, or some other means. If the lender writes off the remainder of the debt, the borrower may still be responsible for taxes on the forgiven amount as if it were income.

In some cases, it may be possible to have more than one property lien on a single property simultaneously. If that is the case, the oldest claim is typically honored first, then subsequent claims are honored in order of oldest to most recent. One lien holder may make their claim subordinate to another lien holder, if both agree. That action would switch the priority level of the two claimants, in case of default.