A lien refers to a legal claim or right that a lender or creditor has over a property until a debt that the property owner owes is paid off. When a property owner takes out a loan or borrows money, the lender might put a lien on the property as collateral. This means that if the borrower defaults on the loan or fails to fulfill the contractual obligations, the lender may have the legal right to seize the property or sell it to recover the outstanding debt.
A common example of this is a mortgage lien, where the lending institution (like a bank) has a secured interest in the property until the homeowner pays off the mortgage in full. If the homeowner fails to make the mortgage payments, the lender can foreclose on the property.
There can be multiple liens on a single property, and they generally have a hierarchy, meaning that certain liens are paid off before others if the property is sold. This hierarchy might include things like first mortgages, second mortgages, tax liens, or mechanic’s liens.
Investors in real estate must be aware of any liens on a property, as they can affect the ability to sell or transfer the property, and may also impact the property’s value. Doing a thorough title search to uncover any existing liens is a standard part of the due diligence process in real estate transactions.