01 Jul What is a Lien & How does Lien Work?
What Is a Lien?
A lien (pronounced like “lean”) is a claim or legal right against assets that are typically used as collateral to satisfy a debt. A lien can also be described as a claim that someone or something has on a property that you possess or use. The individual or entity that has the claim—such as a lender – is called a lienholder.
A lien could be established by a creditor or a legal judgement. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien. There are many types of liens that are used to secure assets.
What’s the Difference Between a Lien, a Loan, and a Mortgage?
A loan is money given to you by a lender. A mortgage is just a type of loan, for real property (land and building).
A lien is a record put on the property you are buying, to allow the lender to hold the ownership of the property in case you don’t pay.
How Liens Work
A lien provides a creditor with the legal right to seize and sell the collateral property or asset of a borrower who fails to meet the obligations of a loan or contract. The property that is the subject of a lien cannot be sold by the owner without the consent of the lien holder. A floating lien refers to a lien on inventory or other unfixed property.
Liens can be voluntary or consensual, such as a lien on a property for a loan. However, there are also involuntary or statutory liens whereby a creditor seeks legal action for nonpayment, and as a result, a lien is placed on assets including property and bank accounts.
Some liens are filed with the government to let the public know that the lienholder has an interest on the asset or property. A lien’s public record tells anyone interested in purchasing the asset or collateral that the lien must be released before the asset can be sold.
Types of Liens
There are many types of liens and lien holders. Liens can be put in place by financial institutions, governments, and small businesses. Below are some of the most common liens.
A lien is often granted when an individual takes out a loan from a bank to purchase an asset. For example, if an individual purchases a vehicle, the seller would be paid using the borrowed funds from the bank. In turn, the bank would be granted a lien on the vehicle. If the borrower does not repay the loan, the bank may execute the lien, seize the vehicle, and sell it to repay the loan. If the borrower does repay the loan in full, the lien holder (the bank) then releases the lien, and the individual owns the car free and clear of any liens.
A judgment lien is a lien placed on assets by the courts, which is usually as a result of a lawsuit. A judgement lien could help a defendant get paid back in a case of nonpayment by liquidating the accused assets.
A mechanic’s lien can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the contractor could go to court and get a judgement against the non-paying party whereby property or assets can be auctioned off to pay the lien holder. Many service providers have the option to place a lien to secure payment, including construction companies and dry cleaners.
Real Estate Lien
A real estate lien is a legal right to seize and sell real estate property if a contract is not fulfilled. Some real estate liens are automatically put in place, such as the case of a mortgage lien. When a party borrows money from a bank to purchase their home, the bank places a lien on the house until the mortgage is paid off. However, some real estate liens are due to non-payment to a creditor or financial institution and as a result, are involuntary and nonconsensual liens.
There are also several statutory liens, meaning liens created by law, as opposed to those created by a contract. These liens are very common in the field of taxation, where laws often allow tax authorities to put liens on the property of delinquent taxpayers. For example, municipalities can use liens to recover unpaid property taxes.
In the United States, if a taxpayer becomes delinquent and does not demonstrate any indication of paying owed taxes, the Internal Revenue Service (IRS) may place a legal claim against a taxpayer’s property, including the taxpayer’s home, vehicle, and bank accounts. A federal tax lien has precedence over all other creditors’ claims and can lead to a sheriff’s sale. A sheriff’s sale is a public auction whereby assets are repossessed, sold, and the generated funds are used to repay a debt to a creditor, bank, or the IRS.
A tax lien also affects the taxpayer’s ability to sell existing assets and to obtain credit. The only way to release a federal tax lien is to fully pay the tax owed or to reach a settlement with the IRS. The IRS has the authority to seize the assets of a taxpayer who ignores a tax lien. Typically, the IRS uses liens for delinquent taxes as a last resort following all other options being exhausted, such as collection, installment repayment plans, and settlement.
How to Get Rid of a Lien
Paying the amount you owe – in full – is the best way to get rid of a lien. A “release of lien” is a written statement that removes the property from the threat of the lien, usually in the case of a mechanic’s lien or a tax lien. 8 It should be signed at payment as proof of payment and as an assurance that the property will not have a judgment placed against it.
Grand City Investment Limited is a Licensed Money Lender that was incorporated in Hong Kong on MAY 29, 1984 with Company Registration No. 0137353 under the Money Lenders Ordinance (Chapter 163 of the laws of Hong Kong). We are the premier provider of Trade Finance, Recourse Loan, Non Recourse Loans, Insurance, Investments, Wealth Management, Portfolio Management, Trade Platforms, Private Placement Programs as well as the issuance and monetization of Bank Instruments such as Standby Letter of Credit (SBLC), Bank Guarantees (BG), Usance LC, Letters of Credit, Differed Letters of Credit and Funding for companies, SME’s and private individuals.
OUR SERVICES INCLUDES BUT NOT LIMITED TO THE FOLLOWING:
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- Letters of Credit (Red Clause Letters of Credit, Usance LC, SBLC, DLC, L/C etc)
- Proof of Funds (POF) Messages: Pre Advice Message / Bank Comfort Letters
- Purchase Bank Instruments (Bank Guarantees and Standby Letter of Credit)
- Lease Bank Instruments (BG, SBLC, DLC, Letters of Credit)
- Wealth Management / Portfolio Management
- Insurance & Underwriting Services
- PPP and Trading Platforms
- Corporate Finance
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At Grand City Investment Limited we value your time and get straight to the point. Some companies will talk your ear off, we believe that action speaks louder than words so we prefer to be solely focused on results. We have a large network of world class banks which gives us the unique ability to create outcomes others can’t. We have been in the loan and financial instrument industry since 37 years ago.
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NOTICE TO BROKERS/AGENTS/COMPANY REPS: We value and appreciate brokers who are direct to their clients. New brokers are welcomed and compensated with between 1% to 2% commission on every deal. Here are a few of the many benefits of being a Grand City Investment broker:
- Professional Support for brokers
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- Wide Range of Financial Instruments to choose from such as bg sblc issuance & Monetization Programs.