When the Creditor Gets a Lien Against Your Property

Learn how a creditor can get a lien on property, such as your house or personal property, and what a creditor with a lien on a house or other property can do.

By , Attorney · University of the Pacific McGeorge School of Law

If you're wondering why a creditor would place a lien on property, it's to help the creditor get paid. Liens work because a buyer won't purchase a home with a lien on it and a lender won't finance it. Why? Because the lien gives the creditor an ownership interest in the property that won't go away unless you surrender the property, pay off the debt, lose the property to foreclosure, or have a bankruptcy court remove the lien.

If you have a lien on house property or other assets, you'll want to learn:

  • how a creditor gets a lien on property
  • what a creditor with a lien on a house or other property can do, and
  • how to remove a lien.

Because property liens and financial problems go hand in hand, filing for bankruptcy could be part of the solution. To make it easier to learn how bankruptcy works, we've put together a few things you should know about bankruptcy. And our quick ten-question bankruptcy quiz is another useful tool to help you decide if bankruptcy would help solve your financial problems.

How a Creditor Gets a Lien on Property

Not all liens arise in the same way. In fact, in most cases, you agree to let the lender have the lien on the property. That's why lenders have liens on houses purchased by taking out a mortgage and liens on vehicles financed with vehicle loans. However, sometimes the creditor places a lien on property without your consent.

Here are the three primary lien types you might encounter:

Voluntary Liens on Houses and Cars

A borrower can agree to a creditor placing a lien on property when purchasing the property. For instance, home or car lenders regularly require borrowers to put up the purchased house or car as collateral by granting the lender a lien. If the borrower who voluntarily allows a lien on a house fails to pay as agreed, the lender can reclaim the home. You can also expect to give a voluntary lien when financing items like jewelry, electronics, mattresses, furniture, and large appliances.

Judgment Liens on Houses and Other Property After Trial

A creditor who wins a collection lawsuit can place a lien on property owned by the losing debtor—the person who owes the creditor money. This type of lien is known as a "judgment lien."

Some states automatically impose a judgment lien on the losing person's property. Others require the winner to record real property liens where the real estate is situated and personal property liens with the appropriate state agency.

Statutory Liens on Houses and Other Property

Liens like mechanics, tax, and student debt liens aren't voluntarily, and the lienholder doesn't need to win a judgment to get one. A law grants the lien right when the borrower fails to pay the debt. Learn about tax liens in bankruptcy.

For more detail, read about different types of liens.

A Creditor Lien on Property Ensures Payment

So why would a creditor want a lien on a house or other property? It is a powerful way to make sure you pay a debt. For instance, most liens will give the creditor the following rights:

  • a property interest until you pay your debt
  • payment if another creditor seizes or forecloses on the property, and
  • the ability to force a property sale.

Because liens often get paid when selling or refinancing property, many creditors sit back and wait for that day to come. Here's how it works.

Because liens stay with the property, typically, a buyer will do a title search and require the seller to remove any lien discovered before finalizing a sale. Lenders also condition financing on a clean title free of liens. Keep in mind that lien laws, protections, and procedures vary by state.

How to Get Rid of a Creditor's Lien on Property, Including a Lien on House Property and Other Assets

The easiest way to get rid of a lien is obvious—pay the underlying debt. But that isn't always possible. Here are other options.

Return the Property

If you need a lien removed from a credit report but can't pay the debt—and you can do without the property—returning the property might work. However, your state laws will determine whether you exchange one problem for another. For instance, if you return a car and the lender sells it for less than what you owe at auction, the lender might go to court for a deficiency judgment after repossession.

File for Bankruptcy

Bankruptcy doesn't automatically get rid of a lien on property, but you'll qualify for an exception in some instances. For example, a bankruptcy judge will set aside a judgment lien in bankruptcy if it prevents you from taking advantage of a property exemption (exemptions protect your property from creditors in bankruptcy). You can also eliminate liens by paying what you owe using a Chapter 13 payment plan. Start by learning about lien stripping and "cramdowns" in Chapter 13 bankruptcy.

If you're worried about a lien on a house or other property, you likely have other debt issues. Even if you can't eliminate a creditor's lien on a house in bankruptcy, improving your finances by discharging (erasing) qualified debt can free up the funds you need to solve your lien issue.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

You'll find fillable, downloadable bankruptcy forms on the United States Courts Bankruptcy Form webpage.

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

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Timing Your Bankruptcy Filing: When to Delay or Avoid Bankruptcy Altogether

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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