A lien is a legal document filed by a creditor (lender) in order to record its claim on the debtor's (borrower's) property. The lien is recorded at a government's office. The lien provides a creditor with some protection or collateral until the debtor pays the creditor the amount owed.
Here are three examples of liens:
- A bank may lend a retailer $50,000 but one of the conditions is that the bank will file a lien on the retailer's inventory. In this situation the bank's lien results in its loan becoming secured.
- A mortgage is a lien filed by a lender in order to secure the lender's long-term real estate loan. The lien will require that the lender be paid the amount owed on the loan before the real estate can be transferred to another party.
- The U.S. government may file a lien on a company's assets until a tax obligation has been paid.
A lien on a company's assets is to be disclosed in the company's financial statements.
