Do you know the word “lien” is derived from an old French word for “band” or “tie,” and can actually trace its roots all the way back to ligare, a Latin phrase for “to bind?”
While understanding this etymology isn’t essential to understanding how liens work, it’s still helpful to take this broad, historical view — because, at the end of the day, the primary purpose of a lien is still to bind a debtor to a lender, until a loan is paid off.
In short, a lien is a mechanism that a creditor can use as legal claim to, or a charge against, your property. A creditor places a lien on property in order to secure payment or performance of an obligation from a debtor.
With a lien in place, creditors may be able to seize, repossess, or foreclose on the asset in question as a form of payment on a debt. In other cases, a lien may empower a creditor to take legal action against a debtor, or else claim the first bite at the apple when the property is sold down the line.
Broadly speaking, liens are designed to be placed on property. But it’s important to note that there are many different types of liens, which can be applied in many different situations. As a consumer facing mounting debt, it’s important to understand these different varieties of liens, and how they may come into play based on your unique circumstances.
Generally speaking, the most common types of property liens can largely be divided into two major categories, voluntary and involuntary.
Consensual/Voluntary Liens
With a voluntary or consensual lien, a debtor agrees to attach a lien to a piece of property, putting it up as collateral in order to receive financing or a loan. Common examples of voluntary liens include mortgages and auto loans. In both cases, the borrower puts up the physical property (e.g. the home or the vehicle) as collateral, in order to receive financing. The lien then acts as a form of security, and allows the creditor to foreclose/repossess the asset if the borrower fails to make payments on time, or otherwise breaches the terms of the loan agreement. Generally, consensual liens are released or discharged when the borrower pays off the amount of the loan in full.
Statutory/Involuntary/Non-consensual Liens
In other cases, creditors can attach liens to your property or assets without your consent, either by law or by seeking lien rights in court. Most often, these liens are sought as a way to make a claim for unpaid bills or outstanding debts. A few of the most common examples of involuntary liens include:
Judgment Liens
Most commonly, judgment liens result from a lawsuit brought on by a creditor seeking payment for an unsecured debt, which may include credit card debt, personal loans, medical bills, and so on. A creditor may receive a judgment lien on real estate or personal property, typically after first winning a legal action and a money judgment.
IRS and Tax Liens
Broadly speaking, tax liens are those resulting from a failure to pay a tax debt. Now, with that said, tax debt can arise in various forms, and there are multiple types of tax liens to be aware of. For instance, the government can place a lien on real estate for unpaid property taxes. The IRS may also file a tax lien for back taxes owed. In both of these cases, proper notice is required, and the taxpayer must be given a reasonable opportunity to pay the taxes owed before a lien can be applied.
Child Support and Alimony Liens
If a debtor owes a significant amount in child support or alimony payments, the recipient party may be able to place a lien on the debtor’s real estate or personal property.
Mechanic’s and Contractor’s Liens
Mechanic’s and contractor’s liens typically occur when the hiring party fails to adequately pay for parts, services, or labor. In these cases, the contractor may be able to acquire a lien on the property, often with the intention of forcing a sale. In other cases, these liens can also be filed against your property by subcontractors seeking payment by a general contractor (for instance, an electrician hired to work on your home’s systems by a general contractor, who never provides the proper payment for the electrician’s parts or labor).
Curious About Other Types of Liens? Want to Keep the Conversation Going?
Liens can be a complex topic to wrap one’s head around — particularly when you’re dealing with them in conjunction with one of the countless other moving pieces that go into the real estate or bankruptcy processes here in Chicagoland, or around the country.
For anyone seeking more information on property liens, consulting with an experienced attorney may be a logical path forward. A legal professional can help demystify these key concepts and discuss specific, actionable solutions, tailored to your unique personal or financial situation.
If you have any more questions about liens or any other aspect of bankruptcy, real estate, or personal injury law, don’t hesitate to reach out to the attorneys and staff of the Gunderson Law Firm to continue the conversation. .
At the Gunderson Law Firm, our team possesses unparalleled expertise and insight, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, and insurance industries. The Gunderson Law Firm represents a wide range of clients — individuals and companies, small and large, national and local — who turn to us for effective legal representation and informed, objective advice.
