Next video:
Loading the player...

A lien gives a creditor the legal right to seize and sell property, then use the proceeds to pay off a borrower’s debt. Usually, the property relates to the purpose of the loan. 

For instance, Rhonda borrows money from a bank to purchase a new automobile. As part of the loan agreement, Rhonda will allow the bank to place a lien on the car. Should Rhonda default on the loan, the bank will repossess Rhonda’s car, sell it, and then use the money from the sale to pay the loan balance. 

There are many different types of liens. The one common characteristic is that they secure payment of a debt. A real estate lien secures payment on a mortgage. A mechanic’s lien secures payment for services performed on property.  In fact, most service providers, from construction companies to dry cleaners, have the option of a lien in order to secure payment.  Judgment liens are placed against property to secure payment in a legal judgment against a defendant to a lawsuit. 

The Internal Revenue Service uses liens quite extensively to secure payment for delinquent taxes. It is usually used as a last resort after all other settlement and collection options have been exhausted.

For large amounts, liens are a matter of public record. Filing a lien with the government lets the public know that the lien holder has an interest in the property, and that the lien must be released before the owner can sell it. 

Related Articles
  1. Taxes

    Investing in Property Tax Liens

    Investing in property tax liens can be a viable alternative for experienced investors who are familiar with the real estate market.
  2. Taxes

    Start Over With The IRS

    If you're struggling to pay back taxes, try a fresh start with the IRS. They really can help.
  3. Financial Advisor

    Top Alternatives Assets for Capital Preservation

    At best, alternative investments can help preserve capital by avoiding correlation with stocks and by beating inflation. Here's a look at some options.
  4. Investing

    Equity Stripping Leaves Creditors Empty-Handed

    Add additional debt to your real estate assets to keep the creditors at bay.
  5. Investing

    Life Beyond the Major Currencies

    Renowned currency expert Kathy Lien looks at other world currencies and their nation's economies to demonstrate that there are opportunities in forex outside of the US dollar.
  6. Retirement

    Retirement Planning for Entrepreneurs and Small Businesses

    If your business has receiveables, here's a smart way to leverage them to build up your retirement fund fast.
  7. Investing

    How To Profit From News About China

    Renowned currency analyst Kathy Lien notes that as the US heads into midterm elections, politicians often focus on China, and she thinks the Chinese yuan will be active this fall.
  8. Insurance

    Encumbrances And Nonpossessory Interests In Real Property

    Learn about nonpossessory interests and the various forms of encumbrances.
  9. Investing

    How To Profit From Yen Intervention

    Kathy Lien, director of currency research for GFT, discusses the recent intervention by the Bank of Japan to support the yen and how traders can potentially profit from it.
  10. Taxes

    How To Negotiate Back Taxes With The IRS

    Recently, the IRS has been more amenable to working out late tax payments. But you have to address the problem up front, and don’t keep Uncle Sam waiting on his tax money.
Hot Definitions
  1. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  4. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  5. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
  6. Custodian

    A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. ...
Trading Center