The term lien is used to describe the legal right given to a lender to take, or sell, property of a debtor as security or collateral against payment of the debt. Once placed on a property, a lien will remain in effect until the loan is paid in full or satisfied.
Generally, there are two parties to a lien, the owner of the property is known as the lienor, while the person who has claim to the property is known as the lienee. Placing a lien on property reduces the risk to the creditor (lienee). It is a way to ensure the borrower (lienor) repays the loan on time.
As is the case with a deed, a lien can take on several specialized forms:
- Assessment Lien: municipalities making improvements to property may seek an assessment lien to ensure future tax payments will be used to pay for the improvements.
- Mechanic’s Lien: also referred to as a contractor’s lien, protects those individuals supplying labor and / or materials to improve a property.
- Judgment Lien: a lien placed on an asset to ensure payment of a legal claim against another party.
- Tax Lien: a legal lien on a property for taxes due, sometimes sold at county auction.
There is also a hierarchy for the payment of liens as described below:
- First Lien: takes precedence over all other liens or claims to a property.
- Junior Lien: subordinate in priority relative to other liens.