A lien is a legal financial obligation that can be voluntary or involuntary, general or specific. A voluntary lien is a promise to pay off a debt, while an involuntary lien is a court-ordered type of restitution or repayment. The creditor actually has an ownership stake in the property that is liened, allowing them to take possession if the terms of the lien are not satisfied.
Lien records have the potential to severely – or positively – impact one’s credit score and ability to borrow money, qualify for a job in a sensitive financial environment, or advance in the military. Liens that are court-ordered and involuntary, or that are unpaid/overdue are likely to create a financial nightmare. A mortgage lien, which is voluntary, can benefit one’s financial position if it is up-to-date or even paid off early.
Liens come in many forms including:
A general lien is one that allows the creditor to take almost any possession the court allows if the terms of payment are not met. That means a debtor who does not pay a general lien may have a vehicle repossessed, their house sold for repayment, or bank accounts seized.
A specific lien is more common. These liens are a sort of collateral against a major loan like a mortgage. If a homeowner defaults on a mortgage the bank has the right to sell the house in order to pay off the loan. It’s similar for auto loans, which allow the creditor to repossess a vehicle if the loan is not paid up.
Liens often show up on property deeds and may prevent the real estate from being sold until the lien is cleared. Similarly one cannot sell a vehicle without the title, so the bank that holds the vehicle loan holds the title to the vehicle until the debt is paid. Sometimes there are concurrent liens on the same piece of property; a court may need to decide which takes precedent or is considered the “first lien.”
Liens are a part of everyday life, even if one is not aware of the proliferation of such encumbrances. Other than mortgages and auto loan liens, the following are liens that are processed daily:
There are some 370 Homeowners Associations (HOA) in the United States that represent 40 million households. These organizations are legal entities that control aspects of life in many communities, including making rules about the appearance of properties, how many vehicles may be present, and improvements to be made to the buildings and community spaces. Property owners within HOA communities are obligated to make payments to the organization as well as to abide by the rules. If betterments are levied in order to repair roofs, sidewalks, or to upgrade the water system then all owners are expected to pay their fair share. When an owner does not pay their monthly fees (which average $250 in the U.S.) or is fined by the association, a lien may be attached to the property for the unpaid fees and attorney’s fees, late fees, and other costs added to it. Over time, the HOA organization may need to go to court to execute the lien, forcing a sale of the property in order to collect the amount it is owed.
