What is a lien?

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:

  1. 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.
  2. 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.
  3. 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.

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