What Is a Perfected Lien?

Osmand Vitez

Lenders who make frequent loans to many different borrowers often need security in order to protect the interest in borrowed money. This legal protection often comes in the form of a perfected lien, which is legal standing for claiming the security upon borrower default. While this legal standing can help a lender hedge bets against borrower default, it does not necessarily mean court rulings will go in favor of those holding the perfected lien. First, a lender must file the lien with the proper legal authority in order to establish precedence over others who claim rights to the property. These liens typically relate to real estate, though other property secured through loans may have liens against it.

If a loan amount on a mortgage is not repaid, a bank can exercise its lien and repossess the house.
If a loan amount on a mortgage is not repaid, a bank can exercise its lien and repossess the house.

A mortgage deed or deed of trust is typically the document that helps a borrower obtain a perfected lien. The document must be filed with the proper legal authority in the local courts or other legal municipality. This must occur properly as the courts where a property is located typically have jurisdiction over any disputes or other legal battles regarding the property. Having the mortgage deed or deed of trust does not necessarily mean that a lender has the immediate right to claim the property if an issue arises. Other legal steps are typically necessary to enforce the lien against the borrower and the property in question.

Again, a mortgage that involves a home or similar place of residence is most likely subject to a perfected lien. Other loans made against collateral can also have this lien type placed on them so the lender has the ability to claim the item upon borrower default. A basic legal form filled out by the lender and possibly the borrower is the first step in the process of starting a perfected lien. An attorney may be necessary to review the form and ensure it meets any and all legal requirements prior to filing the document with the local courts or other municipal authorities. When filed, the accepted document then becomes the primary legal resource for a lender to lay claim to any collateral or property in the loan agreement.

Having a perfected lien essentially means the lender has precedence over any other lien types that may be filed on a property. For example, an individual who completes work on the property may not receive payment from the property owner. The unpaid individual can file a mechanics lien or other legal document against the property. A perfected lien will, however, take precedence in most cases over the mechanics lien. Lenders may not always be able to secure their liens under certain legal circumstances, however.

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