What Is a Property Lien?

A property lien is a legal claim on assets which allows the holder to obtain access to 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.

Property Liens Explained

Property liens can be used by creditors in a variety of situations. A property lien is a legal claim to specific assets that has 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 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 debt that is unpaid. The granting of a property lien usually occurs after numerous attempts have been made to collect 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 mortgage 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 payoff 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 property of a specified value to cover the unpaid costs incurred from an agreement for goods or supplies.