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What is a lien?

On Behalf of | Aug 29, 2019 | Banking & Business Transactions

Extending credit or providing a loan to another person is a gamble on the part of the giving party. That is because, despite a contract or agreement that outlines how repayment will be completed, the receiving party may simply refuse to pay their creditor back. When this happens, a creditor may wish to take steps to recoup their financial output, so they do not suffer economic loss.

One way that a creditor may get back what they are owed is through a lien. When a creditor sues the borrower for the recovery of their money, there are several outcomes that may result. If the creditor fails in their case to show damages, the matter may be dismissed. If, however, they are able to prove that they are owed money and the borrower defaulted on their payments, the creditor may secure a lien.

A lien attaches to property owned by the defaulting borrower. When that borrower sells the property on which the lien is attached, the creditor will be repaid with the money the borrower earned from the sale. For example, if a creditor has a $5,000 lien on a property that the borrower later sells for $50,000, the creditor will get their $5,000 from those funds.

Liens are useful legal tools for creditors who cannot carry significant losses when their borrowers cannot or do not pay them back. Readers who are interested in learning more about liens may want to seek individual legal advice from attorneys who work in the field of creditors’ rights.