Voluntary Lien

What Is a Voluntary Lien?

A voluntary lien is a claim that one person has over the property of another as security for the payment of a debt. Liens are attached to the property and not to a person. A voluntary lien is contractual or consensual, meaning that the lien is created by an action taken by the debtor, such as a mortgage loan to buy real estate.

Understanding Voluntary Lien

A voluntary lien is a type of lien that exists because of an action taken by a debtor. This is the opposite of an involuntary lien that occurs by law, such as a tax or special assessment lien that is imposed by a regulatory authority. Naturally the holder of property cannot legally sell the property while a lien is in place. The lien should reflect the real value of the property in question that is being used as collateral. Should there be a default on the debt, the lien holder can take possession of the property—for example, through foreclosure proceedings in real estate or through a repossession of vehicles.

Different Ways Voluntary Liens Are Applied

In addition, mortgages for real estate, voluntary liens come into play with financing for other transactions, such as loans for cars. Oftentimes the physical property acts as collateral under the lien; however, there are examples where a voluntary lien is applied to business loans, personal loans with collateral other than cars or homes, credit agreements, and even rent-to-own appliances.

The nature of the lien might be structured to be placed on something other than property that is procured through the loan that was taken out. Instead, some sort of property that is already owned is put as collateral for a line of credit or cash advance that will be used for other purposes.

For instance, a lien could be put on a valuable painting that is put up as collateral for a cash advance to fund another purchase. A homeowner who has already paid off a mortgage might need more cash-in-hand and seek a home equity line of credit. Just as with a mortgage, the house would serve as collateral with the lien holder getting an interest. Moreover, a business could have a voluntary lien on it if the business owner takes out a line of credit to cover various operational costs and projects. In this case, they would not take possession of the business. Instead, they would receive a security interest in it.

Compare Mortgage Lenders
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.