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What is a Lien and How Do They Work?

written By
Kimber Severance
Reviewed by
Tracy Rawle
September 13, 2023

A lien is a legal agreement that gives a creditor the right to your property if you do not fulfill your responsibilities in the agreement.

The purpose of this type of legal document is to give a lender the assurances they need to secure a loan for a borrower. If you’re using an asset or property as collateral in a loan, then you’ll probably have to deal with this type of legal agreement.


 

Access the Value of Your Car with a Title Loan


Lien Definition

lien definition

A lien is like a temporary shared ownership of a property or asset. It is a legal document that allows someone else, like a lender, to also be named among the owners of a property during the life of a loan. Loan security is the purpose of a lien, meaning the lender can guarantee someone’s obligation to the borrowed money. It helps ensure that a loan will eventually be repaid.  

For example, if you take out a title loan, the lender will become a partial owner on the title of your car. This means the lender will be one of the owners listed on the car’s title until the title loan is repaid. When a borrower fails to pay off their loan, the lending company can sometimes repossess the vehicle title, transfer the title, and even sell the car to make sure the loan is paid in full eventually.  

Another example would be when you are financing your car. Financial institutions that help finance personal property, like cars and houses, will often have this type of legal agreement in case the borrower fails to pay their car payments or mortgage payments.  

What Is a Lien Holder?

This can be whoever has access to the title of a property. For example, if you take out a title loan the lender will become a partial title holder on the title of your vehicle. This could be a creditor, a lender, someone involved in a legal judgment, or a government entity.

Liens on Property

These can include taxes or houses. In both cases, the lender will retain partial ownership of the property until the loan is repaid in full.

What is a Lien on a Car?

When you buy a car using a loan, the lender of that loan keeps a temporary, partial ownership on that vehicle until you no longer owe them money. If you use the title of your car to take out a title loan, then the title loan lender will also keep this temporary, partial ownership on the title of your car until the title loan is repaid.

what is a lien on a car

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What is a Judgement Lien?

This can be placed on any kind of property or asset. They are used by the court system when a lawsuit requires the transfer or selling of property or assets. This allows the court to have legal ownership to transfer or sell those assets.

What is a Tax Lien?

This is when the Internal Revenue Service (IRS) places a legal claim on the property of someone who owes taxes to repay owed taxes.

What is a Lien on a House?

If someone becomes delinquent on their mortgage payments, then the mortgage lender may use their partial real estate ownership to seize the house and sell it to repay the loan.

In Conclusion, 

Liens have many uses for lenders and borrowers. They can help everyday people get the things they need like a car to drive or a home to live in. They can also help people get the loan funding they need using collateral loans.

Keep Learning

Loan Terminology 101
What is a Collateral Loan?
How Much Cash Can I Get for a Title Loan?

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