What Is a Perfected Lien?

A perfected lien is a lien that has been filed with the appropriate filing agent in order to make the securing interest in a collateral asset binding. A lien is used in secured loans and integrated into the lending contract. The lien provides documentation that the creditor has a legal right to seize property for which title ownership is maintained by the creditor.

How Perfected Liens Work

A perfected lien is a binding document that has been filed with the appropriate agency allowing for a legal claim to seize assets if a loan borrower defaults. A perfected lien is ultimately the lien created to secure collateral for the creditor in a secured loan.

Secured Loans

Secured loans require a lien since the loan is backed by a specified collateral asset. Secured loans can be offered against a range of collateral types, the most common being real estate used in mortgage loans. Other types of collateral loans include secured loans for commercial equipment, automobiles, art or jewelry.

A secured loan typically involves both a lien and title rights to the collateral property. A creditor will create a lien to document their legal claim against secured collateral. The creditor is also the title owner on the collateral asset until the loan has been paid in full. A lien gives the creditor legal right to easily obtain permission from the courts to notify a borrower that assets are being prepared to be seized because of unpaid payments on the loan against the collateral. Liens help to provide a standardized process for lenders to obtain property that is being occupied by a borrower.

Perfected Lien Filing

In the legal industry, perfected is a term that refers to the process of officially filing a claim in order to make it legally binding. Perfected liens have various filing requirements based on the type of collateral and the lender’s state government legislation. In a commercial lending transaction, a Form UCC-1 financing statement must be filed with the correct authority to perfect the lien and make it legally binding. In most states liens are filed with the office of the Secretary of State or the office of the county recorder. The filing form and lien document outline the details of the collateral used to secure the loan. The filing statement also authorizes the lender as the senior creditor with first-order rights to seize the collateral asset for which they hold the title if a default occurs.