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If you’ve ever held a mortgage or car loan, then you’ve had a lien placed on the title of your home or automobile.
And if you’ve ever been involved in a situation where you owed money to a contractor or have been involved in some sort of legal judgment situation – or were on the other end of the equation – a lien may also be involved.
Basically, a lien is the legal right for a particular party to stake a claim in an asset of value if an underlying debt has not yet been fully repaid. Valuable assets with liens on title can be difficult to buy and sold until the liens are dealt with and removed.
What is a Lienholder?
Basically, a lienholder is the party that holds the lien. It could be a lender, bank, finance company, credit card issuer, or individual that a contract has been signed within which money is owed.
The lienholder would then have a stake on a specific asset – or a lien – that would then serve as collateral and ensure that the monies owed are repaid. As long as a balance is still owed, the lienholder will hold on to the asset in question until it is released.
In the case of a mortgage, the lienholder is the mortgage lender. In the case of a car loan, the lienholder is the vehicle lender. And in the cases of a contractor lien or judgment lien, the lien holders would be the contractor or plaintiff, respectively.
While you might be on the receiving end of a lien, you may also become a lienholder yourself, depending on the situation. In order to become a lienholder, you could file a claim with the Small Claims Court of Ontario if the amount is less than $25,000. If you have a larger claim to file, you’ll want to work with a lawyer.
You may then be able to register the lien with Service Ontario, though your lawyer may help do this for you. Once the lien is registered, the homeowner will be served. Hopefully, the debt owed will be repaid shortly thereafter, though oftentimes a lien can remain on title for years before full repayment of the debt in question is made.
Whether you’re having trouble getting someone to repay you for a debt owed or simply want to secure your finances and make sure you’re repaid what you’re owed at some point, you may want to become a lienholder and place a lien on someone else’s property.
What About First Lienholders?
If there is more than one lien on the title of a home, the first lienholder in line will be repaid first before any other lienholder in the equation.
A first lien is the first debt that will be repaid if a borrower defaults on the loan and the property was used to secure the debt. As such, the first lien will be paid before any other lien. For instance, a lender that holds the first mortgage on a home is considered to be the first lienholder.
In the case of a home in which the borrower defaults, the lender will foreclose and is then free to sell the home and be the first one in line to get paid whatever proceeds are made from the sale. As the first lienholder, the lender assumes a lesser risk compared to other lienholders.
That’s why second mortgages usually come with higher interest rates because of the added risk of being second in line to be paid back in the event of mortgage default.
Can you get a second lien title loan? Check out this article to learn more.
Different Types of Lienholders
There are various types of liens that can be placed on the title of a valuable asset, such as a car or home.
Mortgage lien. When you take out a mortgage, a lien will be placed on your home by your mortgage lender until you’ve fully paid off your loan.
Car lien. Likewise, a lien will be placed on your vehicle if you take out a loan to finance it. Until that loan has been repaid in full, the lender will place a lien on your car’s title.
In both of these cases, the liens provide security to the respective lenders, allowing them to repossess the home or vehicle in order to make sure the debts are satisfied.
By having a lien on the title of the home or car, the debt will be considered secured, giving the lender a better chance of being paid back for the loan extended to finance either asset.
These types of liens are positive in nature because they give consumers a chance to purchase big-ticket items that they otherwise wouldn’t be able to afford. But there are times when liens can be negative in nature.
Contractor lien. If you hire a contractor to do work on your home and did not pay them what was expected, they may file a lien and place it on your home until you pay the bill in full.
Tax lien. The government could place a lien on your home if you have outstanding taxes that have yet to be paid.
Judgment lien. This can involve having a lien placed on your home in the event that you are sued and have been ordered to pay a specific amount to the plaintiff. The judgment lien is placed to ensure that damages will be paid if you’re unable to pay right away.
Can You Purchase an Asset That Already Has a Lien?
Most buyers would probably not be willing to assume a lien on a home. That’s why it’s usually customary for sellers to have to deal with the liens on the title of their property before they list and sell.
Liens are attached to real estate, which means that the debt doesn’t follow the person selling the asset. Instead, liens exist on the property title.
Before a real estate deal can close, the mortgage company will want to have a title search performed in order to make sure there are no issues with the title before it’s transferred. If a lien appears on the property, the mortgage lender probably won’t agree to finance the purchase.
If you’re buying a vehicle with a lien on it, it’s recommended to get the owner of the car to settle the lien and have it discharged first. Without a lien-free title of the automobile in your name, the car won’t be able to be registered in your name.
Everything you need to know about car title loans, click here.
How to Find Out if Your Asset Has a Lien
When you’re buying a home, having a title search conducted is a great way to find out if there are any liens on the title before you commit to buying the home. A title company will be able to conduct this search on your behalf.
You can also check with the local Land Registry Office to verify whether or not a lien is on the title and what its status is.
To find out if there is a lien on a car, you can check with the Ministry of Transportation simply by providing the VIN, make of the vehicle, and model year. If you own the car, you can get in touch with the dealer or lienholder to find out.
Liens are public records, so anyone has the right to find out if there are liens on specific titles. You can visit the local government office to have the title of an asset searched for you.
What does having a clear title mean? Take a look at this article.
How to Remove a Lien From Your Asset
If you’re planning to sell a home or car that has a lien on it, your best bet is to pay off the debt before you sell. After the lien has been paid off, the lienholder will then issue a clearance certificate which proves that the lien isn’t valid anymore and that the debt has been paid.
If you’re unable to repay the debt, you could try to sell your home “as is” to a willing buyer, though it will be very difficult to find a buyer who would be willing to take on that type of issue.
That said, you may be able to come up with an arrangement whereby any proceeds of the sale will be used to pay off the lien, after which the title can be cleared and the ownership can be transferred.
Otherwise, you may be able to negotiate with the lienholder to see if a lesser debt amount can be arranged. You may be able to enlist the help of a debt counselling company who may be able to have a representative negotiate on your behalf.
You may also consider filing a consumer proposal with a specific condition stipulating that the lien will be removed by the lienholder when the proposal is complete. This should be a last resort, however, as a consumer proposal can be harmful to your credit.
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