How Important is Lien in Loan Repayment

Jasz

VIP Contributor
Lien is a legal charge over property to secure the payment of a debt or performance of an obligation. It is generally used as a security interest over real property, and in some jurisdictions, intellectual property. A lien is a right to keep possession of or ownership of property until the debt is paid. The right may be enforced by legal action (Garnishment) against third parties who are holding that property for the debtor.

Liens are often created by state law and they vary from state to state. Liens can be classified into two types- voluntary and involuntary. Voluntary liens are those which arise from contract where both parties agree on it while involuntary liens arise when one party has not agreed to it but still has some benefit out of it.

In general, lien is used as a security interest over real property, but in certain jurisdictions it may also be used as security interest over personal property like accounts receivable, inventory etc.,
A mortgage lender can claim a lien on your home if you don't pay your debt on time.
 

Holicent

VIP Contributor
Lien is a form of security interest granted over any asset owned by the debtor. In the case of a loan, it means that the bank has a right to seize the collateral if the borrower defaults on its payment obligations.

The main purpose of a lien is to ensure that the lender gets paid back in full. It’s also a way for lenders to protect their interests if they have made an unsecured personal loan. For example, if someone borrows money from a friend or family member and doesn’t pay it back, there isn’t much chance of recouping the debt unless there is some collateral involved (like a house). In this case, having a lien against the property makes sure that you will get your money back if things don’t work out between you and your borrower. For example, What happens when you don’t pay back your car loan? If you default on your car loan payments, your lender has several options available to them:

They can repossess your vehicle (if it has been financed through them). This means that they take possession of it so that they can sell it at auction and recover some money from its sale proceeds. If they do not want to repossess your care, thay can hold on to your collateral.
 
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