Property Lien: Definition, How It Works, and Legal Rights

By
Julia Kagan
Julia Kagan
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Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

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Updated November 30, 2020
Reviewed by
Khadija Khartit
Khadija Khartit
Reviewed by Khadija Khartit
Full Bio
Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.
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What Is a Property Lien?

A property lien is a legal claim on assets that allows the holder to obtain access to the property if debts are not paid. A property lien must be filed and approved by a county records office or state agency. It is then delivered to the property holder with specific terms notifying them that action has been taken to repossess a piece of property.

Key Takeaways

  • A property lien is a legal claim on assets that allows the holder to obtain access to the property if debts are not paid.
  • Property liens can be granted for repossessing property such as a car, boat, or even a house if the owner has defaulted on mortgage payments.
  • Typically, property liens are the final step a creditor will take to collect an unpaid debt.

How Property Liens Work

Property liens can be used by creditors in a variety of situations. A property lien is a legal claim to specific assets that have been granted by the courts. A creditor must file and receive approval for a property lien through a county records office or state agency. Each jurisdiction has its own rules and regulations governing property liens.

A property lien can be granted for repossession of a real estate property, car, boat, or equipment. A tax lien can also initiate a legal claim by the government to the property of a taxpayer which may include bank accounts, real estate, and automobiles. A lien is generally the first step a creditor will take to seize property. It provides notification to the debtor that action is being taken. Levy is also a term associated with a lien and is the actual act of seizing property. This may lead to a sheriff's sale.

Creditors and Property Liens

A property lien is typically the final step a creditor will take to collect a debt that is unpaid. The granting of a property lien usually occurs after numerous attempts have been made to collect the debt through a proprietary or external debt collection agency. It can be a very good way for debt collectors to collect what they owe. It can also cause substantial distress for the borrower.

In the case of a real estate property, a creditor may choose to obtain a first-order property lien after several missed payments have occurred on a mortgage loan. A creditor has defined rights to the property which is used as collateral against the mortgage loan. Therefore, a creditor can easily obtain a property lien on a mortgaged property in delinquency. A property lien indicates that the creditor is seeking to foreclose on the property. If a debtor is not able to pay, the creditor has full rights to the home if a first lien has been granted allowing first priority to repossess the real estate property for resale to pay off the debt.

Other situations may also arise that cause a creditor to file a legal property lien claim. A mechanic’s lien and a judgment lien are two common forms. A mechanic’s lien can be filed by a contractor performing work on a home or car. If the labor is unpaid by the debtor a mechanic’s lien may be granted giving the laborer rights to the property. In a judgment’s lien, a creditor may also file a claim for a property of specified value to cover the unpaid costs incurred from an agreement for goods or supplies.