Americans enjoy a wide range of legal rights, some of which go largely ignored or unappreciated by many people. Others are not widely known or understood. It is important to know your rights as a citizen of the United States, particularly when it comes to the possession of private property, including land, and other major assets. One of the little-understood aspect of ownership is that of the lien: the right of a creditor, with a verified debt owed to them by you, to take possession of property that you lawfully own.
This is a tactic used by creditors to force the issue of cooperation in repaying your debt to them. It is most often used with regard to land or real estate, but can be applied to other property, including cars, boats, other vehicles, computer equipment and heavy machinery.
How Does a Lien Work?
A lien is a notice attached to your property, usually through its being filed with an appropriate agency. For real estate, this would likely be a county records office. For other property, it will usually be a state agency, most likely the secretary of state. Once filed, this notice is a matter of public record.
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If you wish to sell or refinance personal property, you need to have a clear, undisputed title to that property. A lien functions to contest that, asserting that some measure of the value of your property belongs to the creditor making a claim. Until the matter of your debt is cleared up, this will prevent the lawful sale or refinancing of whatever property is affected.
Can a Creditor Sell My Property?
Under most circumstances, a creditor has the right to have your property sold off to pay your debt to them. Most liens are applied to real estate, and a property lien of this kind may be sold at a foreclosure sale or auction. Except in the case of tax liens, however, this tactic is not commonly undertaken. If there is a mortgage or other outstanding financing option on your property, for example, this must be paid off before the property can be sold (provided it predates the lien, which it generally does). In such a case, a creditor can still sell off your property, but they would have to maintain payments on the mortgage themselves, or subsequently lose the property.
If Not Foreclosure, How do Creditors Collect on Liens?
A creditor generally won’t foreclose on a property to satisfy their terms, in part because there is a potentially more lucrative way of receiving compensation. Frequently, this occurs through the sale of the property in question, as the current owner may have no other way available to pay off their debt. Because a buyer will usually be unable (and unwilling) to take possession of a property while a lien is in force, the seller will use part of the money earned from the sale to pay off their debt and have the lien removed. Since this kind of sale will almost invariably generate more revenue than a foreclosure auction, the creditor is more likely to be paid in full than they would be if they simply auctioned the property off.
Liens represent a complex, often unpleasant, but nevertheless vital element of the American legal infrastructure, as they provide a way of assuring debt repayment, which is part of the bedrock of our economy. Find out more about liens, including what types of lien exist, when one can be imposed, and how they are managed by creditors and the court system.