Definition of "Lien"
A lien is a legal instrument by which one party – usually lenders and creditors - guarantees the obligation of a real estate owner to do something – generally repays the money. If that obligation is not satisfied at the right time through the right methods, the lien applicant may be able to seize the property.
In sum, the lien definition is: a legal right of a creditor to sell and liquefy the collateral (the property) of a debtor who defaulted or failed to meet with the terms on whatever contract that lien was connected to. A security interest “hostage”, kept to assure one gets whatever it was invested back.
For instance, liens are commonly applied when someone asks for a bank loan to purchase a car. The bank gives the necessary funds for the person to pay the car company, but holds a lien as collateral. If something happens and the bank doesn’t receive the correct amount in time, they are allowed to execute the lien, seize the vehicle and sell it to recover its losses in the whole transaction. When the person repays the whole loan with no setbacks, the bank releases the lien and the asset becomes free of any lien claims.
A lien can be consensual or non-consensual. That means it can be something that was agreed via contract by the creditor and debtor or created by statute and enforcement of common law; that is: regardless of a contract signed by the debtor, the mere existence of the relationship between the debtor and the creditor, warrants the latter to put a lien on the former. For example, a Homeowner’s Association can put liens on its members for fines, constant late charges, unpaid assessments, attorney fees etc.
Real Estate Tip:
Still not getting 100% of our lien definition? Contact a real estate agent whose eyes have seen a lot, so you avoid unnecessary problems like these!
Popular Real Estate Terms
Relating to trees or shrubs normally found in temperate climates. Deciduous trees shed their leaves in the fall. Deciduous woods such as pine, oak, Maple, redwood, and spruce are widely ...
Also called accounting or unadjusted rate of return. The return computed by dividing the anticipated future annual net income by the required investment in real estate. Sometimes the ...
Lender's written statement and accounting for the remaining balance, date of maturity, and interest rate on a mortgage. The lender is certifying this information to the borrower or any ...
Recognizes profit on a long-term construction contract as it is earned gradually during the construction period. This approach is preferred over the completed contract method because it ...
After-tax cash flow is a calculation method for companies’ financial performance to show their ability to generate cash flow through their operations. The after-tax cash flow formula ...
Provision in a mortgage that requires the final payment to be substantially more than all other payments. ...
Bond collaterized by real assets. Two kinds of mortgage bond are senior mortgages and junior mortgages. A mortgage bond may have a closed-end provision that prevents the firm from issuing ...
The central core of an urban area. The inner city contains the major commercial center, termed the central business district (CBD). Close to the inner city are also some of the poorest ...
Ownership of property by two or more people in undivided interests, without the right of survivorship. Each coowner's interest may be conveyed separately by its owner. Tenancy in common ...
Have a question or comment?
We're here to help.