Category: 

What are Lien Rights?

Article Details
  • Written By: Christopher John
  • Edited By: Angela B.
  • Last Modified Date: 06 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The Argentinian resort town of EpecuĂ©n was submerged by flooding for years; it is now populated by one elderly man.  more...

December 5 ,  1933 :  Prohibition ended in the US.  more...

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.

Ad

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.

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.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email