Lien

A lien is a form of security interest. A lien gives a lender the right to take the borrower’s real or personal property in case a debt goes unpaid. Lien also applies to arrangements wherein security is required to ensure performance of an obligation or some other duty.

Liens are categorized depending on whether both parties enter the agreement voluntarily (consensual) or involuntarily (non-consensual).

Examples of consensual liens include car loans, mortgages, and property improvements. In the first to cases the lien, which is the car and the home, is granted by the borrower to the lender in order to get money needed to acquire the property.

In the case of home improvements, the contractor is the one that grants the lien (i.e. money placed in an escrow account) as assurance that the work will be done according to agreed terms including timeframe and work quality.

Non-consensual liens, on the other hand, are those that the parties involved in have no recourse but to grant and follow since they are demanded by the law. Examples of this are tax liens and maritime liens. Note that non-consensual liens vary for each country since they depend on the specific laws in that area.

A lien is non-consensual in nature. It is dictated by the law. In some cases, however, both parties are actually willing or even want to include the lien as part of the agreement. In cases like these, that lien becomes consensual, as in the case of liens for home improvements.

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