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 What Is a Lien?

A lien is a legal document that gives a creditor the right to claim a debtor’s property if the debtor fails to make the required payment of a loan or debt. A lien ensures that the debtor eventually pays off their debt. If they do not, they risk losing their property to the creditor. Liens can be used to enforce a judgment in a lawsuit against the judgment debtor.

For example, when a person takes out a loan secured by their home, the borrower agrees that the lender can place a lien on that property. If the borrower defaults on their loan payments, then the lender can claim the home as payment for the loan amount still owed. The lender can force the sale of the home and collect the amount they are owed from the proceeds of the sale.

The right of the lien holder to force a sale of the affected property must be specified in the lien document. Not all liens have a provision that allows the lienholder to force a sale. If the lien does not contain such a provision, the lienholder would have to wait until the debtor decides to sell to collect on the lien.

If the creditor has the right to force the sale of the property, when the creditor forces the sale and collects the value of the lien, the debtor gets to keep the amount left after the creditor has been paid.

A lien also gives notice to any potential buyers of property that the owner’s debt has not yet been paid off. If the property sells, the creditor would be entitled to collect the amount they are owed. In some circumstances, this can make it challenging for the borrower to sell their property.

Generally, a creditor places a lien on an item of property with a high value, such as a house or a car. In business, floating liens are sometimes placed on inventory or other property that is not fixed.

How Are Liens Used?

Many different kinds of loan contracts have lien provisions in them. Mortgage and auto loans are common examples. Mechanics often include lien provisions into their auto service contracts. Contractors in the construction trades also commonly include lien provisions in their project contracts. Lawyers do as well. The goal is always the same, to secure payment from the client or customer.

When a loan is “secured” by the borrower’s personal property, the loan contract includes a lien against that property. The lien is used to guarantee payment. The lender knows that even if the borrower does not make the payments required by the loan agreement, the lender still has a way of collecting their money.

As noted above, liens are also used to enforce a judgment in a lawsuit. Once a court has ruled against a party to a lawsuit, the amount of any award of damages becomes a formal debt. There are several different legal measures available to enforce the judgment if the judgment debtor does not pay it.

For example, wage garnishment and government-issued liens are one of these measures. If a person loses a lawsuit and fails to pay any judgment, the government may issue a lien against the person’s property.

The Internal Revenue Service (IRS) also has the authority to use tax liens to collect unpaid taxes.

What Is a Lien Release?

A lien is released or removed from an item of property when the lien holder, the creditor, removes the lien from the property, which essentially extinguishes the lienholder’s right to claim it. Aside from no longer having to make payments on the obligation that is secured by the lien, the borrower can then sell the property and keep all the proceeds of the sale.

How Do I Obtain a Lien Release?

Generally speaking, paying off the loan secured by the lien is the surest way to obtain the release of a lien. However, there are other ways in which a borrower can have their lien released or discharged.

Some other ways to have a lien released include the following:

  • Request a Lien Release Directly from the Creditor: In some instances, the creditor may agree to lift the lien at some point in the future when certain circumstances are present. Basically, this would be considered a form of debt forgiveness.
  • Bankruptcy: If the debtor files for bankruptcy and the debt underlying the lien is discharged, then a judgment lien cannot be renewed after bankruptcy, and it expires.
  • Pay Off the Loan: A lien is typically released automatically once the underlying loan or debt is fully paid off. The creditor should take steps to release the lien when a loan is paid off and should notify the debtor.
  • Ask a Court to Intervene: There are some situations in which the borrower may have to take legal action or file a lawsuit against the lender to release their lien. The court can issue an order directing a lender to release a lien in the appropriate circumstances.
  • Automatic Release of a Tax Lien: A tax lien must be automatically released after 10 years, provided it was not re-filed. If the lien is re-filed, the IRS has another 10 years to collect the taxes owed.
  • Request a Lien Waiver: A release may be granted after a lien has been placed on an item of property. In contrast, a lien waiver can be contracted for at the time the loan agreement is made by the parties. A lien waiver is essentially an agreement that states that the lender will never place a lien on the property as a means to collect payment from the debtor.

Lastly, it is important to remember that a judgment lien expires automatically after a certain number of years specified in the state law where the judgment was made if it is not renewed. However, a judgment lien can be renewed.

In cases where the lien has already expired, the borrower might not need to request a release. Instead, they will be able to show proof that the lien is no longer enforceable due to the passage of time.

What if a Lender Refuses to Release a Lien?

In most cases, the lender needs to take certain steps to indicate that they have released a debtor’s lien. Releasing a debtor’s lien may involve completing certain paperwork that can serve as notice that they have released a lien.

It is possible that a lender would fail to officially remove the lien from the property even after the loan it secures has been paid in full. When this happens, the debtor’s title may reflect that there is still a lien on the property when in fact, there is none. This is problematic because it can cause different issues to arise during transactions involving the property, such as being unable to sell it.

Lenders generally have 30 days to issue the lien release once the debt has been fully paid off. If the lender forgets to or refuses to release the lien and the lien document confirms that they should, the borrower may need to take legal action and file a lawsuit against the lender.

Presenting the necessary proof would enable the court to order the lender to lift the lien. However, the debtor would simply ask the lender first to do what is necessary to release the lien.

Do I Need to Hire a Lawyer for Help With a Lien Release?

The process of obtaining a lien release can present challenges, especially if the lender is unwilling to cooperate. Thus, if you need assistance with any issues involving the lien release process, you should consult a local lawyer for help.

An experienced foreclosure lawyer will be able to help you get a lien removed from your property.

If your lien is a tax lien, you would consult a tax lien release lawyer. If bankruptcy is a factor in your situation, you may wish to consult a bankruptcy lawyer for help. A bankruptcy lawyer may also be of help if your debt level has generally become unmanageable.

Additionally, if you need to file a lawsuit or appear in court, then a lawyer will be able to guide you through those events.

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