What is a Lien?

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What is a Lien?

The determination of whether a debt is secured or unsecured hinges on whether there is a lien with respect to the property. 

In general terms, a lien is a claim against specific property. Typically, the claim belongs to the person or the business that is owed a debt, usually a debt related to the property. It is sometimes called a “security interest”. A lien may be consensual, meaning that a person owning property agreed to having a lien against it. A lien may be involuntary, meaning that the lien was created either by a governmental entity or by a person authorized to create a lien by law.

As a practical matter, a lien does three things: First, it prevents the owner of the property from selling or otherwise transferring the property unless the lien is paid or otherwise addressed; second, if the lien is not paid voluntarily, the lien enables the person claiming the lien to undertake foreclosure of the lien and sell the property to pay the lien claimant’s debt; and third, the lien established priorities among competing creditors who claim an interest in the property against which the lien has been claimed.

There are many different types of liens, and the legal rules for each different type of lien are different. Merely knowing the law concerning one type of lien is no guarantee of knowing much at all about a different kind of lien.
In order to claim some types of liens, the person claiming the lien must have possession of the property against which the lien is claimed.

However, a number of other types of liens do not require the lien claimant to possess the property. Notice of these types of liens is required to be recorded in public records before they are binding on anyone other than the debtor. The public recording usually describes the amount of the debt, how the debt arose, the property against which the lien is claimed, the name of the owner of the property, and other pertinent information about the alleged debt and the property.

The claim of lien must be properly prepared and recorded timely. It is usually recorded with the county recorder’s office where the property is located in the case of real estate, or in the Secretary of state’s office in the case of property other than real estate. In addition, the lien claimant must make reasonable efforts to give notice of the lien to the owners of the property, and sometimes others who have an interest in the property.

Sometimes, simply being owed a debt related to some property and recording a claim of lien in the proper form and within the required time period is not enough to make the lien enforceable. The person or business claiming the lien may also need to be properly registered or licensed with state regulatory agencies, and also provide specific notices before or after the claim of lien is recorded. Again, there is generally a direct connection between the debt claimed and the property subject to a lien in the case of business or an individual. For example, a garage that fixed a car might claim a lien and hold the car it fixed until the bill for fixing the car is paid. Or, a contractor which constructs a building may claim a lien against the building until its bill for that building is paid. Typically, however, in the cases of people or businesses, but not government, the garage will not be able to claim a lien against the building, and the contractor will not be able to claim a lien against the car even if both the building and the car are owned by the same owner. In the case of businesses or people, they usually must loan money against the property or somehow improve the property by repair, replacement or similar action before they are entitled to claim a lien.

The government may place a lien against any property owned by a taxpayer for unpaid taxes without the requirement to do anything to improve the property. In addition, the government may also lien property for the cost of civic improvements.

Remember, there are many different types of liens. As a basic rule, if you have provided any labor, materials, equipment or services to another person or business, you may be able to claim a lien against the particular property you worked on, even though it is not owned by you. Also, if your property has been worked on, it may be subject to such a lien.

Because there are so many different types of liens, and because the requirements and time limits vary so much among the different liens, it is impossible to describe here what must be done to protect yourself against a lienholder. If you believe that one of your creditors has a lien against your property, it is extremely important that you divulge your suspicion to your attorney. Bankruptcy will often afford debtors with the opportunity to strip liens from their subject property, but only if the debtor’s bankruptcy attorney is made aware of the lien’s existence.

2008-05-13T14:12:25+00:00
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