# Understanding Liens: Types, Examples, and How They Impact Property

## What Is a Lien?

A lien represents a creditor's legal claim to the debtor's property as collateral, ensuring financial obligations are met. Whether through voluntary agreements or court judgments, liens allow [creditors](https://www.investopedia.com/terms/c/creditor.asp) to seize assets if debts aren't repaid. This guide explores various lien types, from bank to tax liens, and their role in safeguarding creditor rights while influencing property transactions.

### Key Takeaways

*   A lien is a legal claim allowing creditors to seize and sell a debtor's property if financial obligations aren't met.
*   Liens can be voluntary, such as those on collateral for a loan, or involuntary, like court-ordered judgments for unpaid debts.
*   Common types of liens include bank liens, judgment liens, mechanic's liens, real estate liens, and tax liens.
*   Government entities can impose tax liens to collect unpaid taxes, affecting taxpayers' ability to sell assets or obtain credit.
*   Debtors must satisfy the debt or face potential loss of their property due to the enforcement of a lien.

![Lien](https://www.investopedia.com/thmb/TZ-Pb7y4cf3tR2mI0kLXmf77xuA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/lien.asp_Final-a26e927e7b4a49ef892f52de58f4761f.png)

*— Dennis Madamba / Investopedia*

## Understanding the Mechanism of Liens

A lien lets a creditor seize and sell [collateral](https://www.investopedia.com/terms/c/collateral.asp) if a borrower defaults on a loan. Borrowers cannot sell liened property without the lien holder's consent.

Liens can be [voluntary](https://www.investopedia.com/terms/v/voluntary-lien.asp), as when a property is used as collateral for a loan. Involuntary liens arise when creditors take legal action for unpaid debts. Courts can place liens on a debtor's assets, such as property and bank accounts.

Liens filed with the government inform the public of the lien holder's interest in an asset. Public records show that a lien must be released before an asset can be sold. Banks require [title searches](https://www.investopedia.com/terms/t/titlesearch.asp) before issuing mortgages to check for existing liens on properties.

> **Important**
>
> Bankruptcy might discharge debts, but liens on property often remain.

## Exploring Different Types of Liens

There are a variety of types of liens and lien holders. Liens can be put in place by financial institutions, businesses, courts, and governments. These are some of the most common ones:

### Bank Lien

A lien is often created when an individual uses a loan from a bank to purchase an [asset](https://www.investopedia.com/terms/a/asset.asp). For example, if someone takes out a loan to buy a car, the car dealer would be paid using the borrowed funds from the bank. In turn, the [bank](https://www.investopedia.com/terms/b/bank.asp) would be granted a lien on the vehicle. If the borrower does not repay the loan, the bank has the right to [execute the lien](https://www.investopedia.com/terms/l/lien-sale.asp), seize the vehicle, and sell it to repay the loan.

If the borrower does repay the loan in full, the bank will release the lien, and the individual owns the car free and clear.

### Judgment Lien

A judgment lien is a lien placed on a debtor's assets by a court, usually as a result of a lawsuit. It can remain in place until the debt has been satisfied.

### Mechanic's Lien

A [mechanic's lien](https://www.investopedia.com/terms/m/mechanics-lien.asp) can be attached to [real property](https://www.investopedia.com/terms/r/real-property.asp) or other assets in case the owner fails to pay for services rendered. If the debtor never pays, the lien holder could go to court and get a judgment ordering that the assets be auctioned off. Many service providers have the option to place a lien to secure payment, including construction companies and even dry cleaners.

### Real Estate Lien

A real estate lien is a legal right to seize and sell a particular piece of property if a contract is not fulfilled. Some real estate liens are put in place automatically, such as when a borrower takes out a mortgage to buy a home. The lender then releases the lien when the mortgage is paid off.

However, real estate liens can also be involuntary, or nonconsensual, if a court decides to impose one to help satisfy a debt.

### Tax Lien

There are also liens known as statutory liens, meaning that they were created by law rather than a specific contract. These liens are common in the field of taxation, where laws often allow tax authorities to put liens on the property of delinquent taxpayers. For example, many municipalities can use liens to recover unpaid property taxes.

In the United States, if a taxpayer becomes [delinquent](https://www.investopedia.com/terms/d/delinquent.asp) on their income taxes and does not demonstrate any intention to pay them, the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) can place a legal claim against the taxpayer's property, including their homes, vehicles, and bank accounts. A notice of a [federal tax lien](https://www.investopedia.com/terms/f/federal-tax-lien.asp) alerts creditors to the government's claim and can lead to a [sheriff's sale](https://www.investopedia.com/terms/s/sheriff-sales.asp). A sheriff’s sale is a public auction in which a debtor's assets are sold, and the funds are used to repay their debt.

A tax lien also affects the taxpayer's ability to sell existing assets and obtain credit. The only way to release a federal tax lien is to fully pay the tax that's owed or [reach a settlement](https://www.investopedia.com/articles/personal-finance/020614/how-negotiate-back-taxes-irs.asp) with the IRS for a lesser amount. Typically, the IRS uses liens to collect delinquent taxes as a last resort, after all other options have been exhausted.

## What Does a Lien Mean?

A lien gives a lender or other creditor the legal right to seize and sell your property (a house or car, for example) if you don't meet your financial obligations on a loan or other contract.

## Why Is There a Lien on My House?

When you buy a house using a mortgage, the lender has a legal right to seize it to recoup its money if you don't make your required payments—a process known as [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp). Your home serves as collateral for the loan, and the lender can keep a lien on it until the loan has been paid off.

## How Do I Get Rid of a Lien?

You can get rid of a lien on your property, car, or other asset by paying off your loan in full.

## What Is a Floating Lien?

More common in business rather than consumer lending, a [floating lien](https://www.investopedia.com/terms/f/floating-lien.asp) refers to a lien on inventory or other unfixed property.

## What Is a Second Lien?

A [second lien](https://www.investopedia.com/terms/s/secondliendebt.asp) is lien secured by the same asset as a first or original lien, such as a lien with a home equity loan for a home that still has a first mortgage. Second liens are lower in priority than first liens, meaning that the holder of the first lien has a right to be paid back before the second lien holder is. Second liens are sometimes referred to as [junior](https://www.investopedia.com/terms/j/junior_mortgage.asp) liens, with first liens being senior to them.

## The Bottom Line

A lien represents a creditor's legal claim against a debtor's property, serving as a guarantee for obligation fulfillment. Debtors can face various liens, like bank, judgment, mechanic's, or tax liens, arising from unpaid loans, legal rulings, or taxes. If obligations remain unmet, the creditor holds the right to seize and sell the assets involved, potentially leading to significant financial consequences for the debtor. Understanding and managing liens proactively can help prevent asset loss and financial hardship.  

> **Article Sources**
>
> 1.  United States Courts. "[Discharge in Bankruptcy – Bankruptcy Basics](https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics)."
>     
> 2.  Cornell Law School Legal Information Institute. "[Judgment Lien](https://www.law.cornell.edu/wex/judgment_lien)."
>     
> 3.  Internal Revenue Service. "[Understanding a Federal Tax Lien](https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien)."
>     
> 4.  Cornell Law School Legal Information Institute. "[Junior Lien](https://www.law.cornell.edu/wex/junior_lien)."