Lien
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While transaction of money has become simpler with time, it is also become necessary to secure ones money. A borrower thinks of securing a loan which makes good money sense. A lender however, needs to make sure that the money lent is recovered. A lien is such a security, provided to the lender. It is a legal claim over a collateral, usually real estate or property, which acts as a security in case of inability to pay the loan by the borrower. It also makes sure that the property does not change hands before the term of payments are complete.
There are many types of Liens but they can broadly be classified into consensual and non consensual.
Consensual Liens are ones where the borrower and the creditor draw a contract which gives the creditor the security against the borrowed amount. Mortgages and car loans fall under this category of liens. Non consensual liens are imposed by common law dictates of the relationship between a debtor and creditor. Tax liens assure that taxes are duly paid. Attorney’s lien is imposed against documents or funds to make sure that the attorney’s fees are paid. Mechanics lien or construction lien makes sure that payment for work done on property gets paid in full. This includes work done for repairs as well as improvements like landscaping. Other liens like Maritime liens on ships and judgment liens are also non consensual liens imposed. The government imposes demolition liens to control private property from becoming a safety or nature hazard. If assessment so reveals that the property has the potential of becoming a public hazard, the government can force the owner to rectify the situation, failing which the property can be hazed down.
A lien can often deter the owner of a property from selling. But there exists an equitable lien which can give the right to relaxation of the lien to an individual who does not own the property. This situation can arise if the occupants of the property have invested in making improvements in the land or property which has irrevocably and undeniably increased its value in the market. There may be a number of occupants, who can have all contributed to this effect and have the right to an equitable loan. This situation often arises when the occupants are not aware of the ownership of the land or property. Or a long time tenant, who completes the work on a property that may have been started by a previous tenant. In this case too, the tenant can demand an equitable lien. Often property changes hands and this change is done subject to the payment of debts or legacies to a third person. Person granted ownership can ask for an equity loan in this situation too.
Liens not only secure the creditor but also make sure that a fair deal is struck between the creditor and the borrower. Transactions of money should not result in any of the concerned parties securing only losses. Liens make sure that this does not occur.