A lien is a legal claim against a property or sometimes a vehicle that has been used as collateral during a loan. Liens are commonly established by creditors and courts of law.
Its purpose is to serve as a guarantee for financial obligations, such as the payment of taxes or repayment of a loan. Should the obligations not be fulfilled, the property or vehicle may be forfeit to the debtor and later resold.
Liens can be removed by settling debts and making payment arrangements.
It is important to note that not all liens are the same. Some may impact an individual’s credit score while others don’t. They are 3 common types of liens in regards to property; tax, bank, real estate liens.
Real estate liens are the right to claim and sell a property in case a contract is not completed in full. Mortgages and home loans have a real estate liens clause which is released after the mortgage is paid.
Bank liens are similar to real estate liens in some ways. It is a lien that is given when an individual applies for a loan from a bank or financial institution to purchase an asset.
Tax liens are a form of lien that might be applied if taxes on an asset are not paid. For example, local governments or tax authorities may place a lien on a property or vehicle if taxes are not paid. This will affect an individual’s ability to sell the property, apply for credit and could lead to the loss of the property.