Mortgage Dictionary -> Lien
When it comes to money and loans, nothing is free. While you may think that you are getting a gift from your lender when you purchase property through the use of a loan, in fact, the lender is also getting something out of the deal and it's not just the interest they collect. The lender is also able to place a lien on the property which they can redeem if the circumstances warrant it. What is a lien, why is it important to you, and when can it be redeemed? These are all questions to be answered.
What is a Lien?
A lien is something a lender places on property, usually a car or a home, depending on the type of loan that is taken out and it gives the lender a right to take the property should the borrower fail to meet the terms of the loan. These terms are laid out when the loan is signed with the understanding that both parties must do their part.
The lien serves as a way of protecting the lender should the borrower default on the loan, as it makes sure that no matter what, the lender gets what they paid for - either the money the borrower owes them or the property itself.
Why is the Lien Important to You?
There's one big reason why the lien that is placed on your property is important to you: it means the property isn't really yours, at least not until you've paid for it completely. It's something that hangs over your head and is a reminder of why you need to make your payments on-time and hold up your end of the loan contract. While many borrowers don't like to think of it as being a nagging reminder of your obligation, it truly is one.
When Does the Lender Redeem the Lien?
The lender only redeems a lien when the borrower has violated the terms of the loan in some way. Usually this is by missing payments or making payments that are less than that of which is required. The lender then is given the choice of redeeming the lien and foreclosing (taking over ownership of the property) on the property.