What is a Lien? Find Out if There is Money Owed

  • by: Patrick Peterson
  • January 29, 2020

car lien

It’s interesting how a single word can inspire such a reaction. Even some short words are long on effect. For example, “lien” is a term that generally carries an aura of financial obligation in relation to vehicles, property, or taxes. The word originated from the Latin word for “to bind” and simply stated, liens bind a debtor to a lender for a property until the debt is paid.
 
A lien is a legal right granted by a property owner, a law, or a creditor that guarantees a financial obligation such as repayment of a loan on property you possess. If you do not satisfy required payments on the loan or meet other agreed terms, the person or entity with the claim (usually a lender) can then repossess or foreclose on the property.
 
When a lien is executed, the creditor then earns the right to sell a debtor’s collateral property if the loan or contract obligations are not met. Keep in mind that lien-secured property cannot be sold by the property’s owner without the lienholder’s consent.
 

Types of Liens
 

The most common types of liens are property and vehicle liens. For the latter, a vehicle is purchased from a dealer through a loan provided through a bank, and the bank then attaches a lien to the vehicle and holds the title.
 
After this process is complete, the debtor makes scheduled payments, and from here, three potential results are possible:
 

  1. The debtor makes all payments on time and pays off the loan within the time period set. The bank then releases the property or vehicle title, and the lien is removed.
  2. The debtor misses or stops making payments, in which case the bank leverages the lien to repossess the property or vehicle. The bank then holds the title until the property or vehicle is sold to another party, and the lien is released.
  3. While the bank still holds the title, a debtor might attempt to sell the property or vehicle before it is paid off. This doesn’t work because a debtor cannot sell a property or vehicle without the title, and the bank must be paid before they release a title. For example, if you trade in a car that still has a loan attached to it; the balance of that loan will be included in the total financing offered for a new car.

 

Construction and Contractor Liens
 

Let’s say you’re working on a major home remodel project and have hired a trusted contractor. Typically, a contractor will hire subcontractors for specific phases of the project, like the plumbing, for example. If the contractor doesn’t pay the plumbing subcontractor, the plumber can file a lien against your property, and you are technically responsible for that payment.
 

Tax Liens

Tax liens are another type of lien, in this case, leveraged against a taxpayer by entities such as the IRS, state, or local authorities. If you don’t pay your taxes when they are due, a lien can be applied; however, you will be given a reasonable opportunity to pay the outstanding tax. Tax liens are typically a last resort to encourage or otherwise force a company or individual to pay outstanding taxes.
 
For example, federal or state governments can place a tax lien on property if the owner isn’t making payments or has substantial income tax debt. The lien isn’t a declaration that the property will be sold, but it ensures tax creditors get the first claim over other creditors.
 

Researching property liens
 

It is highly recommended to investigate the presence of liens on property you intend to purchase. You can do this with a straightforward title search through your county offices, as property titles are public record. Simply bring the property address and request a title deed search, which shows the property’s entire history, including liens, ownership, easements, and rights of way.
 

types of liens

The Importance of Being Informed About Liens
 

Liens can come back to haunt at the worst possible time for individuals and companies as liens can be attached to bank accounts and other critical liquid assets. A lien can, for example, stop the sale of business property. Tax creditors can intercept future credits to a business, and mortgage creditors can start foreclosure procedures to regain secured assets such as mortgaged land or high-profile equipment.
 
Liens also have very real potential to impart a black mark on a property owner’s credit, especially if a loan was secured with personal assets. In that case, a default on the loan can lower credit scores and significantly impact future profits.
 
We can look at construction notices as an ideal example. Communication is challenging in big construction projects and is often the cause of significant delays or other serious problems.
When a surprise issue comes along, construction notices are efficient tools to let everyone know and work together to resolve the problem before it becomes a debilitating snag in progress. In fact, failure to send these types of notices can jeopardize any chance of recovering lost time or money.
 
Some notices are required by law or contract, while others are voluntary. Depending on the situation, proper notice procedures can go a long way in quickly resolving issues while avoiding expensive or volatile interactions. 
 

What Lien Information is Available on an AutoDetective Report?

When it comes to researching vehicles prior to a potential purchase, buyers have an array of easily accessible tools at hand. “AutoDetective” reports offer very detailed and comprehensive information through national databases to help you uncover information like this:
 
Check for recalls and defects on any make and model. Know what you’re getting into and avoid surprises down the road.
 
Research vehicle damage from flood, hail, or fire. So-called “hail sales” are often sly ways to cover up other vehicle damage. Check a car’s history before buying
 
Discover details on accidents and related major damages. Sellers or dealers are not always honest about past accidents. Diligent research on your part can save a lot of future headaches.
 
Verify vehicle specifications and odometer readings. Odometer fraud can hide worn out or malfunctioning parts.
 
Search title history for past activity and to be sure no liens are lurking.