Lien
Lien summary:
A lien is a legal claim to a property to ensure the repayment of a debt.
When you get a mortgage or a home equity loan , the lender puts a lien against your home.
The term lien can also apply to tax debts —the IRS can place liens against property you own if you have an unpaid tax bill.
Lien definition and meaning
A lien is a legal claim to property. A lender or creditor can put a lien on your property when you owe a debt.
Lenders put a lien against your home when you get a mortgage, home equity loan, or home equity line of credit (HELOC) . A lien is a risk management tool for lenders. You won’t be able to sell the property unless the associated debt is paid in full.
Liens could also be used to guarantee repayment of debts in other situations. For example, the IRS can put a lien on your home or other property if you don't pay your tax bill.
Key concept: A lien is a claim on property to guarantee repayment of a debt.
More on liens
Homeownership has its benefits. You can build home equity and you don't have to worry about being subject to the whims of a landlord. When you're ready to buy, you don't have to come up with a huge pile of cash either. You can get a mortgage to pay for the purchase.
A home loan is debt you have to repay. Until you clear your mortgage, your lender can put a lien on your home. Liens are a tool lenders use to guarantee that you'll pay back what you borrowed.
Key features of liens
Liens are a legal way for lenders to make sure borrowers repay their debts. Here are some important things to know about them.
Liens can be voluntary, which means you agree to them when you take out a loan, or involuntary. Involuntary liens don't require your consent.
Liens are typically part of the public record, which means anyone can look up information about the associated debt.
You generally can't sell or refinance property that has a lien against it without paying off the underlying debt.
Liens don't show up on your credit reports so they won't affect your credit score . But a lender could still find out that you have a lien if they pull public records when you apply for a loan.
Types of liens
Liens are used in different situations to guarantee debts. Here are some of the most common types of liens.
Mortgage liens. If you get a loan to buy a home, refinance your current mortgage, or tap your equity with a home equity loan or HELOC , the lender can put a lien on the property.
Tax liens. The IRS can use liens to get you to pay unpaid tax debts. The fastest and simplest way to release a federal tax lien is to pay your taxes in full.
Mechanic liens. A mechanic's lien is a tool that businesses can use to collect payment for services. For example, if you hire a contractor to install new hardwood floors in your house and don't pay their bill, they could put a mechanic's lien on your home.
Judgment lien. A judgment lien happens when someone wins a debt lawsuit against you and asks the court for the lien (in this case, called an attachment). Say you get into a dispute with a neighbor over some damage to their property. They could sue you in civil court and if they win, they could ask for a judgment lien against your home. Then, you have to pay the judgment if you want to sell the home.
Mortgage liens are voluntary, since you agree to them when you get a home loan. The other types of liens listed above are involuntary.
All liens aren't equal, and some take priority over others.
For example, say you own a home. You still have a mortgage, but you want to get a home equity loan to pay for a major remodel project. You're approved for the home equity loan so now you have two debts—and two liens—to manage.
The mortgage you used to buy the home is a senior or first lien. Your home equity loan is a second mortgage or junior lien. If the home is sold before the two debts are repaid, the senior lien is paid first. Whatever money is left goes to the junior lien.
It's good to understand the difference if you're in the market for a home equity loan, especially if you think you might sell the home before the balance is paid off.
Lien FAQs
What is the difference between a mortgage and a home equity loan?
A home equity loan is a type of mortgage. Mortgages are loans that are secured by real estate.
Home equity loans are limited by how much equity you have. Home equity is the difference between what your home is worth and the amount you still owe on your mortgage.
What is a home equity line of credit (HELOC)?
The home equity loan that we offer is a unique fixed-rate home equity line of credit—also known as a HELOC. It’s the most common type of secured line of credit for consumers. The money you borrow is secured by your home. By owning a home, you give lenders a sense that you’re responsible, allowing them to loan greater amounts at lower rates.
Is a HELOC a mortgage?
A HELOC is typically a second mortgage loan . It doesn't replace the original mortgage you took out to buy your home. When you get a HELOC, you'll have to make payments to both your line of credit and your first mortgage until they're paid off.
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