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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. 

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