What is lien?

A lien is a legal right to keep someone else’s property until the owner satisfies a legal obligation to the holder, such as paying legitimate fees for services rendered. Typical liens include mortgages. A lien might be placed on property because of a debt or a court order. 

Lien: What is it?

A lien is a kind of security that ensures payment of a debt, such as a loan. When a lien secures a debt, the creditor has the right to take possession of the asset if the payment on the underlying debt is delayed or defaulted. Purchases may be secured by a wide variety of liens.

All situations in which real or personal property is pledged as security for the payment of a debt or obligation fall within the broad definition of this word. A narrower definition would be “the legal right to retain possession of another person’s property until the satisfaction of a claim.” While a lien right often develops automatically, in rare situations, it may be established by an explicit contract.

In most cases, the holder of a lien has only the right of retainer. But when a creditor has advanced money against a factor’s goods, he usually acquires the right to sell those goods. Sometimes, a court of equity will order a sale even if the lien itself does not grant that authority. And admiralty courts will order a sale to settle maritime claims.

Lien: Rights

A lien on the real property of the defendant or parties against whom a judgement has been rendered is a common result of a judgement being rendered in a court of record. A similar dichotomy exists between legal and equitable liens. 

The former can be upheld in a court of law, while the latter can only be upheld in a court of equity. It is common knowledge that the seller of real estate has an equitable lien on the property until the buyer pays off the remaining balance of the purchase price.

Special liens are more narrowly targeted, whereas broad liens cover a wide variety of situations. A specific lien exists when one party claims ownership of another party’s property because of money or work that was invested in that other party’s property. 

If a borrower defaults on a loan or contract, the creditor may foreclose on the borrower’s property or assets by filing a lien on them and selling the collateral. A lien prevents the owner from selling the subject property without the permission of the lien holder. Inventory and other forms of moveable property fall under the category of “floating lien.”

Consensual liens, such as those placed on the property in exchange for a loan, are one kind of voluntary lien. However, some liens are imposed by law and cannot be removed, allowing creditors to take legal action in the event of nonpayment. Therefore, the debtor’s property and financial accounts become subject to a lien.

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Lien: Validity

There must be in place the following for a lien to be considered valid:

• In the hands of, or with the right to vest in, the party making the acquisition.
• It is necessary for the party asserting the lien to be in physical or legal possession of the property with the consent of the person against whom the lien is being asserted.
• For example, when items are placed to be given to a third party or transported to another location, the lien should emerge upon an agreement, explicit or implicit, and not be for a restricted or specialised fulfil purpose contradictory with the written terms or the clear, objective of the contract.

Lien: Types

Broadly, when a person borrows money from a bank to finance the acquisition of property, the lender may place a lien on the property as security for the loan. Judgement liens are secured claims on property that arise out of court orders. If a property owner fails to pay a contractor for services provided, the contractor may file a mechanic’s lien against the property. 

When a party to a contract does not fulfil their end of the bargain, the lien gives the creditor the ability to foreclose on the property in question and sell it. In addition to contractual liens, the law may establish its own, called a “statutory lien.”

There are three potential sources of liens.

1. By the terms of a written agreement.
2. In the form of an implicit agreement based on customary practices in the relevant industry.
3. When two or more parties are legally bound to one another in one of three ways:

• Liens are granted to common carriers and innkeepers, for example, when the law imposes a duty on them to transport people or goods and, in exchange, requires them to accept payment.
• A trader or other person who expends work on items has a legal right to retain possession of those things until he is paid for his efforts.
• It is the right of the salvor to retain salvaged items until his claim for salvage is paid, but the finder of goods has no such right in any other circumstance.

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