When you owe money to a creditor, one of the means that the creditor can use to collect the debt placing a lien on your property. While you can elect to place a lien on your property as collateral when applying for a loan, in some cases, a creditor can place a lien on your property without your consent.
Liens on Property
When you owe money to a creditor and refuse to pay back the debt, the creditor can take legal action by filing a lawsuit against you. If the judgment is in the creditor's favor, the creditor then has the legal capacity to file a lien against your property. A creditor can only legally pursue you for a debt within the statute of limitations in your state.
Lien Impact
A lien against your property means that the creditor has a legal claim on it and that you cannot sell the property without giving the creditor the money that you owe. In some extreme cases, the lender may move to foreclose on the property. Whether the lender can do this is governed by state law. If your state has a homestead law, for example, a creditor cannot seize your primary residence. Once you repay the debt, the creditor will lift the lien from your property.
Liens on Credit Report
When you have an involuntary lien placed on your property, it can also show up on your credit report. The lien will appear in the judgments section of your credit report along with any bankruptcies, foreclosures or other debt judgments in your past. The lien can remain on your report for seven years from the time of issuance. Once you pay the lien, you may be able to expunge it from your credit report.
Effect on Credit Score
When you have a lien placed on your credit report, it can negatively impact your credit score and your ability to acquire credit and financing in the future. Fair Isaac Corporation, or FICO, produces the algorithm to calculate a credit score and does not offer information about how a lien exactly affects your credit score. However, you can be confident that avoiding a lien on your property can significantly improve your chances of getting credit in the future.
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