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  1. Bankruptcy Glossary
  2. Lien

What is a Lien?

Liens are common in home mortgages and car loans. Liens can be an impediment to transferring title of the car or property. Borrowers who own property which has a lien against it may be forced to sell the property or asset to repay the monies owed to the lender. This can generally be done if the borrower fails to make loan payments and the loan is in default. Monies made after the sell of property (with a lien) by the borrower must be used to pay the lien holder before the title is considered "clear" and possession of the property can be transferred to a new buyer.

Several types of liens exist and can include money owed for work done to improve property. This is considered a mechanic's lien and can include non-payment for work done such as maintenance, repairs and construction. Prior to buying any type of real property such as a home or car it is important to verify there are no liens. Public records can be searched or a company can be hired to perform a title search to verify that the property can be owned with a clear title. Public records contain information about the history of the property, the description of the property, the owner of the property and whether or not there are liens against the title. Individuals who do not ensure a property has a clear title may purchase the property only to discover they must pay additional money to the lien holder to own the property free and clear.