Lien

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DEFINITION of 'Lien'

The legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan contract. A lien exists, for example, when an individual takes out an automobile loan. The lien holder is the bank that grants the loan, and the lien is released when the loan is paid in full. Another type of lien is a mechanic's lien, which can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the property can be auctioned off to pay the lien holder.

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BREAKING DOWN 'Lien'

Liens are typically enforced under provincial or state laws, with the exception of federal tax liens. When a taxpayer becomes delinquent and shows no indication of paying, the IRS may place a legal claim against a taxpayer's property, including his or her home, vehicle and bank accounts. A federal tax lien has precedence over all other creditors' claims. It also affects the taxpayer's ability to sell existing assets and to obtain credit. The only way to release a federal tax lien is to fully pay the tax owed or to reach a settlement with the IRS. The IRS can seize the assets of a taxpayer who ignores a tax lien.

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RELATED FAQS
  1. What is the difference between a lien and an encumbrance?

    A lien represents a monetary claim levied against property to secure payment of an obligation of the property owner, while ... Read Full Answer >>
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    When someone who owes you money has filed bankruptcy, and you have been listed as a creditor in the filing, you are legally ... Read Full Answer >>
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    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
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    Although federal Internal Revenue Service, or IRS, regulations prohibit using a 401(k) account as collateral for a loan, ... Read Full Answer >>
  5. Why do commercial banks borrow from the Federal Reserve?

    Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before ... Read Full Answer >>
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