A claim registered upon something you own.
Okay, first of all let’s talk about pronunciation. In English, lien can be said one of two ways: as one syllable, so it sounds like lean (rhymes with mean), or as two syllables, so it sounds like LEE-uhn. Both are correct, and we’ll even accept the French lee-EHN, so pick one you prefer or rotate between the three.
Whew. Glad to have that out of the way. Now that we all know how to say it, what is it exactly?
Basically a lien is any claim someone has registered upon something you own, reliant upon you paying a debt of some kind.
For example, when you buy a new car and finance it through the dealer, there is a lien upon the vehicle until you pay out the loan. If you stop making car payments, the dealer can cite the lien in court and repossess the car.
Similarly, a mortgage is a lien upon your house. A loan is not the only kind of lien you can have on a property. As we discussed a little while ago, a HELOC (Home Equity Line of Credit) is a way of using a lien to increase your buying power.
Some liens, however, are not entered into voluntarily. For example, a builder’s lien is registered by the construction firm to ensure they get paid for work done on a new building, and a tax lien is registered when a homeowner falls behind in paying property taxes.
Liens are cleared from the records when the debts associated with them are paid in full. All liens stay with the property — so if you buy a home with outstanding liens, you assume responsibility for those debts.
Therefore, it’s imperative that you (or one of the members of your team, such as a lawyer or notary public) search the local records for any liens on a home before you buy it. In simplest terms, if you owe money and that debt is attached to your home, there is a lien on the property. When that debt is paid in full, the lien is cleared from the record.
In future blog posts, we will talk about interest (the amount of your payment that goes to the mortgage), principal (the amount of your payment that goes toward the house) and more ten-dollar words.