Lien

A lien is a legal right or claim that a creditor holds over a debtor’s property or asset to secure the payment of a debt or fulfillment of an obligation. It serves as a form of collateral, ensuring that the creditor has priority over the asset in case the debtor fails to meet the agreed financial or contractual obligations.

Key Features:

1. Security Interest: The lien provides the creditor with a legal interest in the property, without transferring ownership.
2. Purpose: Acts as a protection mechanism to guarantee repayment of loans, performance of contractual duties, or settlement of other obligations.
3. Enforceability: If the debtor defaults, the creditor may have the right to retain, sell, or dispose of the asset in accordance with applicable laws.
4. Common Use Cases: Mortgages, car loans, unpaid contractors, or financial agreements often involve liens as security.

Example: A bank provides a loan to purchase a car. The bank places a lien on the car, meaning the car serves as collateral. If the borrower fails to repay the loan, the bank has the right to repossess the car to recover the debt.