Understanding the Impact of Liens

Article Written By: WendyPolisi

A lien is a security interest held by a lender or service provider on an individuals property, effectively turning the property into collateral pending payment of the outstanding amount owed. A lien may be consensually applied to property, as is often the case with mortgages (especially second mortgages) and mechanics liens related to financing property improvements.

Liens can be placed non-consensually as well. The courts can do this to secure payment for judgments; liens can be placed by tax authorities for unpaid taxes and penalties. There are many different types of liens to secure property for payments but most of them have three results that are the same.

The first, and most important, effect is to create the possibility of the creditor or service provider taking control of the property if certain conditions are met. Unlike most Common Law jurisdictions, in the United States a lien generally does not result in the creditor taking actual possession of the property, but it can under certain circumstances. These circumstances vary by the type of lien in question, but the ultimate point is to give the person owed money a secure interest in the property. Some, though not all, liens are also exempt from being discharged even through bankruptcy proceedings.

The second side effect is closely tied to the first one: A lien makes it almost impossible for the property in question to be sold or to otherwise have ownership transferred to another person. Because the lien means that the property is collateral for another person the official owner can no longer act independently to sell or transfer ownership of the property under lien. Moreover, many lenders or prospective purchasers are not interested in properties that have liens placed against them. The legal owner is basically tied down by his previous commitments.

Another consequence of non-consensual liens is lasting in nature. A lien will usually have a negative effect on a persons credit score. On the credit report the lien is treated as an unpaid debt. Even having just one lien placed can drastically and quickly reduce the credit score of the debtor. If the dollar amount of the lien along with fees, interest and penalty amounts is satisfied then the lien can be released. The lien is then shown as past history instead of a current debt. A lien report will generally show on a credit report for seven years, just like other negatives reported.

Once a lien is placed on a property it becomes a real headache for the owner. If there is any way to avoid the lien it should be pursued enthusiastically. Most American states have drafted their own lien laws that unfortunately make it incredibly easy to place a lien against someones property without their consent. Because of the ease with which this process takes place the system has been abused in many cases. A non-consensual lien can have a devastating effect. Make sure that you pay strict attention to threatened liens and do everything possible to avoid it.

About the Author

Wendy Polisi is the founder of Credit Repair College and Finance the Dream. Credit Repair College empowers people to take control of their financial future by learning everything they need to know to repair credit on their own.

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