What Is Lien, & How Might It Affect Your Aspirations To Invest In Real Estate?
Purchasing a home, vehicle, or any other significant financial commitment is never easy! It goes without saying that banks need security or collateral before they will approve loans for such large sums of money. What would happen now if you didn’t make your loan payments? Banks have the legal right to reclaim collateral by invoking a lien. How then does it operate? Let’s begin by defining lien and discussing its various forms and hazards.
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Just like you, banks have legal obligations to provide justification for their spending. How can a lien assist banks in recovering non-performing loans, then? Does a lien guarantee loan fulfilment even in the event that the borrower is unable to make timely payments? Indeed, how may a lien affect you or your right to transfer as a homeowner? This page provides answers to all of these queries and more, but let’s begin with a definition.
Lien definition: What is it?
To put it simply, a lien is a legitimate claim or right that guarantees the creditor’s security interest and permits them to seize the property. A lien may be imposed on real estate by a number of organisations, including government authorities, banks, and financial organisations. This is usually carried out in cases where the owner of the property is unable to pay back a loan or mortgage.
What Lien Is: The Procedure
A lien is typically the last and ultimate measure used by a court or creditor to recover past-due loan balances. The court or the creditor gives the borrower enough time to pay off the outstanding premiums before enforcing a lien. However, if the borrower doesn’t know about the court proceedings or the creditor’s requests, the institution may legally or unlawfully claim the property, in which case a lien will arise.
It is significant to remember that before any legal documents are signed, banks and other organisations should advise the borrower about the practice of liens. Before being formally recorded in writing and signed by the borrower and the creditor, the security or collateral is usually predetermined by both parties. When it comes to floating liens, on the other hand, financial institutions have the advantage because the asset or inventory is not predetermined or fixed.
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Consensual vs non-consensual lien differences
Liens fall into one of two categories: non-consensual or consenting. For your convenience, the two are side by side compared in the table below.
| Aspect | Consensual Liens | Non-Consensual Liens |
| Creation | Created by the parties concerned agreeing together | Imposed by law to safeguard creditors’ rights |
| Consent | Needs the property owner’s approval | Don’t need the owner’s approval |
| Examples | Auto loans and mortgages | Mechanic’s liens, judgement liens, and tax liens |
When it comes to property ownership and debts, knowing the distinction between voluntary and involuntary liens is essential.
What is a Lien: A Discussion of the Different Types
In India, liens of several kinds can be imposed on real estate:
Tax liens
When property owners don’t pay their taxes, the government imposes tax liens. The government may take possession of and sell the property in order to recoup the unpaid taxes thanks to these liens. In India, municipal corporations at the local level frequently levy tax liens.
Real estate liens
To protect a property owner’s debt, real estate liens are imposed on the property. Contractors, mortgage lenders, and other parties that have rendered services or made loans pertaining to the property may file these liens. Banks and other financial institutions frequently use real estate liens in India to get home loans.
Bank liens
Similar to real estate liens, bank liens are imposed expressly by banks to safeguard amounts owing by the owner of the property. These liens may be placed for a number of reasons, including debt from credit cards or outstanding loans. Banks frequently utilise liens in India to recover unpaid loan balances.
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Judgement liens
These liens are imposed by the court because the property owner is the target of a court order. The creditor is authorised by these liens to take possession of and sell the property in order to pay off the outstanding balance. In India, judgement liens are frequently used to collect unpaid penalties or damages imposed by the court.
Mechanic’s liens
Contractors or suppliers who have contributed labour or materials for building or restoration projects may file mechanic’s liens on a property. The authority to take and sell the property in order to recoup the outstanding payment is granted by these liens to the supplier or contractor. In India, the construction sector makes frequent use of mechanic’s liens.
Owners of real estate must understand the various liens and their effects. It is advised to seek advice from a real estate advisor or legal expert when handling liens.
What Lien Is: The removal of property liens
Until the obligation is handled out of court or paid in full, a property lien may prevent the property from being sold or transferred. The following actions can be taken to get a property lien removed:
Recognize the specifics of the lien
First, compile all the lien’s details, such as the name of the creditor, the amount owed, and the filing date. This will assist you in deciding what to do next.
Negotiate or pay off the debt
Try settling the debt through negotiation with the creditor if you have the money to do so. As an alternative, you can settle the debt entirely. The lien may be released if the debt has been paid in full.
File a release of lien
You must file a release of lien with the proper authorities, such as the local land records office, when the debt has been settled. The lien is formally removed from the property via this paperwork.
Seek legal assistance
It is essential to get legal counsel if you run into any problems when trying to remove the lien. You can secure a smooth conclusion and be guided through the appropriate steps by a real estate attorney.
In summary, enforcing a lien is a bad move that affects creditors and borrowers alike. For example, a property lien reduces the value of the property, can result in legal issues, and can have some effect on property insurance. Before finalizing the contract, it is advisable to find out from a legal expert what the lien entails and how it will affect your loan payment or purchase.
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