CHAPTER 6: COLLECTIONS
A lien is a form of security interest over an item of property. Its purpose is to secure the payment of a debt or the fulfillment of some other obligation. Liens are effective because they keep an owner from selling property without paying off the debt owed, and because they can be used to force foreclosure in order to secure payment for the creditor.
Sometimes the creation—or even the threat—of a lien might be enough to pressure a delinquent debtor to pay up, even without voluntarily selling his or her property or seeing it foreclosed.
Types of Liens A lien can be consensual or non-consensual (also known as voluntary or involuntary in different jurisdictions). A consensual lien exists via contract between a creditor and a debtor. Common examples include house mortgages and car loans. In the U.S., non-consensual liens typically fall under the purview of state statutory (but sometimes constitutional) law. Lien law is complicated and varies with jurisdiction. Pursuing a lien means fulfilling a number of steps correctly, in a certain order, and within specified time periods. Liens are not infinite; they expire after specified timeframes, usually five to ten years. As with any complicated legal process, a firm considering pursuing liens against debtors should consult a qualified lawyer licensed in its jurisdiction. There are many different and very specific types of liens. Indeed, it seems as though every industry and profession employs its own particular type of lien. Some examples include: Accountant’s lien: which permits an accountant to retain a client’s papers until the accountant’s fees have been paid. Hotelkeeper’s lien: which allows innkeepers to hold personal property that guests have brought into their hotels as security for payment. Maritime lien: which is imposed on a ship in order to secure payment for those who supplied materials or labor for the ship or who have been injured by the ship. Mechanic’s Lien Another very common type of lien is often called a mechanic’s lien, although it can also be known by other names in various jurisdictions, such as construction lien and artisan’s lien. A mechanic’s lien is a security interest in the specific property for which the lien holder has provided materials and/or labor. It prevents an owner from selling the improved property without settling the debt and can be used to force foreclosure in order to secure payment. Under state statutes, a mechanic’s lien is usually created by the performance of labor or the supplying of material that improves the property. In most states, mechanic’s liens can benefit sub- contractors (as well as prime contractors), whether or not the sub-contractors have direct contracts with the property owner(s). In other words, if the prime contractor doesn’t pay the sub-contractors, the stiffed sub-contractors may have liens against the property that can help them secure payment from the delinquent prime contractor. This can lead to some very complicated situations, with multiple sub-contractors seeking redress from a delinquent contractor, while the owner of the property, even if they have paid the prime contractor, faces the burden of the lien.
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