A lien is a claim or legal right made on property that is frequently pledged as security for the repayment of debt. A lien could be created by a creditor or a court order. An underlying commitment, such as the repayment of a debt, is guaranteed by a lien. The asset covered by the lien may be taken by the creditor if the underlying debt is not paid in full. There are numerous ways to secure assets via liens.
When a borrower defaults on a loan or contract, a lien gives the creditor the legal right to take and sell the collateral asset or property. Without the holder’s permission, the owner cannot sell a piece of property that is subject to a lien. An inventory lien or other unfixed property lien is referred to as a floating lien.
Liens, like a mortgage on a piece of property, can be voluntarily taken or voluntarily granted. However, there are statutory or involuntary liens where a creditor files a lawsuit to recover unpaid debt.