# What Is a Lien Sale, and How Does It Work?

## What Is a Lien Sale?

A lien sale is the sale of the claim—or a hold—placed on an asset to satisfy an unpaid debt. Typically, lien sales are conducted as public [auctions](https://www.investopedia.com/terms/a/auction.asp), and the lien is on real estate, automobiles, and other personal property.

Depending on a particular state's laws, contractors, subcontractors, and suppliers may put a lien on a piece of property they have worked on pending payment for services rendered.

### Key Takeaways

*   A lien sale is the sale of the claim or a hold placed on an asset to satisfy an unpaid debt.
*   Unpaid debts against a property can cause the amount owed to increase.
*   Some individuals might be protected against a forced lien sale.
*   Lien sales can take many forms, including property, vehicle, storage, and business.
*   The local agency with oversight usually posts lien sale notices online and in local newspapers.
*   The government sets the allowable interest rate levels for lien buyers, which vary by state

## How a Lien Sale Works

Buying [delinquent](https://www.investopedia.com/terms/d/delinquent.asp) tax liens at a sale is becoming an increasingly popular form of investing and is similar to purchasing a long-term [certificate of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CD). However, unlike a CD, tax liens cannot be sold back to the taxing authority and must be held until they are repaid. Investors must [learn the ins and outs of investing in tax liens](https://www.investopedia.com/best-tax-lien-investing-courses-5187286) before investing in them. Redemption of the purchased lien is typically at a given rate of return within a specified time frame.

Lien sales for unpaid debts on a property can result in the amount owed increasing further. When the lien debt is sold, usually by a local government agency, the buyer can employ a lien servicing company that may add more fees and interest to the lien. This allows the buyer to see a return on their investment as the debtor must now pay the additional costs imposed.

In many instances, several notices of an impending lien sale will be sent to the debtor before a notice is filed stating the approaching date for the auction. Although a debtor may owe taxes and other fees, there can be exceptions that will shelter their property and other assets from being subject to a lien sale. For example, disabled homeowners, senior citizens, and veterans could receive exemptions.

Active duty military personnel might also be eligible for an exemption for lien sales on their property. Each jurisdiction will have its own criteria, application process, and window of time when the responsible agency must be contacted.

There are limits to the interest rate amounts that a lien buyer can impose. Interest rate limits are set at the government level and vary by state. The bidding process is auction-style, with the winner being the highest bidder. Because there is a limit to the maximum interest rate a winning bidder can charge, the amount the buyer pays for the lien is paramount.

> **Important**
>
> Buying a home with a lien on it is not without complications.

## Types of Lien Sales

As mentioned before, there's different types of auctions that may sell different types of liens. These types of liens may include:

*   **Property Lien Sales:** In property lien sales, a legal claim is placed on real estate or land due to unpaid debts, taxes, or obligations.
*   **Vehicle Lien Sales:** Vehicle lien sales involve the imposition of a lien on a vehicle, such as a car, motorcycle, or boat.
*   **Storage Unit Lien Sales:** Storage unit lien sales occur when a storage unit owner fails to pay rent or meet contractual obligations. The contents of the storage unit are auctioned off to recover unpaid fees.
*   **Mechanic's Lien Sales:** A [mechanic's lien](https://www.investopedia.com/terms/m/mechanics-lien.asp) is placed on a property or vehicle when repair or improvement work has been done. For example, if a car mechanic performs work on your vehicle that you then can't pay for, the mechanic has a lien on your property.
*   **Business Lien Sales:** Businesses facing financial challenges may experience lien sales if they default on loans or fail to meet financial obligations. The sale of business assets aims to settle outstanding debts.
*   **Agricultural Lien Sales:** One specific type of business lien may be related to farming. Liens on crops, livestock, or farm equipment may occur in the agricultural sector due to unpaid debts.

## Example of Lien Sale

Imagine a tenant who faces financial difficulties and falls behind on rent payments for her storage unit. The storage facility issues a lien notice, notifying the tenant of the overdue rent and the imposition of a lien on her stored items. Despite providing the tenant with a redemption period, during which she could settle the outstanding rent and fees, she is unable to do so.

As the redemption period expires, the storage facility proceeds with a lien sale auction. Prospective buyers attend the auction where they can only inspect the storage unit from the outside. The highest bidder wins ownership of the unit's contents. The winning bidder gains possession of the items stored by the tenant, marking the conclusion of the lien sale.

The proceeds from the auction are utilized to cover the overdue rent, associated fees, and any additional costs incurred during the lien process. This makes the storage unit owner whole. If there are surplus funds after settling the outstanding balance, they may be returned to the tenant.

## Special Considerations

Owners of property that is subject to a lien sale can have their property removed from such sale by making payment arrangements to bring their outstanding debt up to date.

There may be special procedures for different types of lien sales, such as an auction for a vehicle of a certain value. How that is handled can differ from a lien sale for the contents of a self-storage unit if the owner fails to pay their bills to the storage company on time. Notices for lien sales might be posted online by the overseeing local agency or in local newspapers.

## What Triggers Judicial Lien Sales?

Judicial lien sales are initiated by court order, often arising from a legal judgment or debt. The court authorizes the sale of property or assets to satisfy the judgment, ensuring that the creditor receives the funds owed.

## What Rights Do Property Owners Have During a Lien Sale?

Property owners typically have certain rights during a lien sale process. These may include receiving clear and timely notices, having a redemption period to settle debts and reclaim the property, and the ability to contest the sale under certain circumstances.

## Are There Redemption Periods in Lien Sales, and How Do They Work?

Yes, redemption periods are crucial elements in lien sales. They provide debtors with a specified time frame to settle the outstanding amount and reclaim ownership of their property before it is sold at auction. The duration of the redemption period varies based on the type of lien sale and local regulations.

## The Bottom Line

Lien sales involve a legal process where a lienholder sells a debtor's property or assets to recover unpaid debts. This process typically includes the imposition of a lien, notices to the debtor, and the auctioning of the property, with proceeds used to satisfy the outstanding obligations.