Lien

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What is a 'Lien'

A lien is 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.

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. How can I invest in tax liens?

    Find out about the steps an investor must take to invest in tax liens, along with the potential benefits of doing so. Read Answer >>
  2. How do I avoid a tax lien on my property?

    Find out the best way to prevent the government from placing a lien on your property, including the consequences of having ... Read Answer >>
  3. What types of liens are seen as good and which are bad for my credit?

    Understand what a lien is and what types of liens are most common for individuals, and learn which types of liens are good ... Read Answer >>
  4. Does the IRS report to credit bureaus?

    Understand the relationship between the IRS and the various major credit bureaus. Learn how credit bureaus find out about ... Read Answer >>
  5. What is the difference between a lien and an encumbrance?

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  6. Can credit card creditors put a lien in house property?

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