What Is a Lien? How Does It Work?

3 minutes read

The debtor or a borrower invariably has to bear the incumbent of the borrowed sum. And that borrowed amount always comes for a price. That means when you borrow money from the creditor. The creditor will automatically possess the legitimate right to get his hand on the collateral property. Therefore, you can coin this entire transaction as the lien. Thus today let’s get some insight on what is a lien and how does it work?

What is a lien?

Note that lien can be a result of any legal verdict or created by any creditor. The main purpose of the lien is to meet the underlying commitment like the loan repayment.

In case, if the debtor fails to satisfy the underlying responsibility or fails to pay back the loan or becomes the defaulter, then the creditor may grasp the asset. Now you can recall the asset as the lien’s subject.

Highlight on different kinds of liens:

Well, governmental institutions, small-scale businesses, and any financial organizations can exercise lien. Therefore, let’s see what are the various types of liens.

Bank imposed lien:

This type of lien is imposed on an individual by the financial sectors like Bank. For example, an individual seeks a loan from a bank to purchase an automobile. Note here the individual is taking the loan and the bank is picking the vehicle as the lien. If he fails to repay, the bank will take away the vehicle.

Lien as imposed by Judgement:

Suppose you are charged with a lawsuit and the court of law imposes a lien on your asset. now this type of lien is also known as the judgment- lien. But the plus side of this lien is that here the defendant can get repaid in scenario of nonpayment by liquefying the accused property.

Lien as mechanics:

This is a type of lien, which is attached to the real asset. That means if the property owner fails to repay the contractor then the contractor might auction the asset in case of non-payment.

How does lien work?

Let’s consider the example of a bike, whenever you are buying make sure that you get it from a professional dealer. The plus point is that this assures that the loan is secured. Once you get that the bank will impose a lien on that.

Now the authority of the bike is with the bank. Now suppose if the buyer is unable to pay off the proposed amount then in that case the lender has the right to sell that particular bike to some other buyer. In this way, the lender will get the promised amount. In fact, to make it legalized and documented the lender will also fill up a form as well. The three important consequences stated below are:


The article above is written to give a justified answer to questions about what its lien? and how it works.

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