Liens are a tool used by creditors and government agencies to secure payment for any outstanding obligation. Liens allow the creditor to make a claim on property that the creditor can then sell in the event that a debtor is unwilling or unable to meet his obligations. Liens are also useful in prioritizing creditors in the event of a default.
Effect of a Lien
Liens prevent property from being sold by the owner. Because there is an additional interest in the property, the owner is now prevented from liquidating the property.
Property Seizure
A lien enables the creditor or government agency to seize and sell the property in the event the debtor defaults.
Prioritzing Creditors
A lien prioritizes creditors in the event there is more than one interest in the property. For example, if a home has a traditional mortgage and a home equity line of credit, both creditors have an interest in the property as the property has been pledged as security against the loans. In the event a lien is filed, the creditor filing the lien has the right to seize and sell the property before the other creditor.
Filing a Lien
A properly filed lien may not be enough, in certain instances, for the creditor to be able to sell a property. At times, certain improvements to a property must be made before a lien can be enforced.
Government Considerations
Government entities are exempt from making improvements to property. Government entities can file liens against tangible property, as well as bank accounts and other sources of income, in order to satisfy outstanding tax debt.
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