Lien meaning in banking typically refers to a legal claim against an asset being used as collateral in a transaction.
As we’ll explain below, a lien can be consensual or statutory. Not surprisingly the specific type of lien can impact you and your assets differently.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Lien Meaning in Banking
- How Do I Remove a Lien From My Bank Account?
- What Is the Difference Between a Lien and a Pledge?
- Frequently Asked Questions
- Ready to Explore Your Options?
Lien Meaning in Banking
Lien meaning in banking refers to a legal claim over an asset. In order for a lien to be placed on an asset, a party must have consent from the owner of the asset or be given the right to place a lien on the asset by a relevant court. Liens may include a bank’s claim on a property that it finances and can also include judgments against an individual that does not meet their financial or contractual obligations.
Why Do Banks Put Lien Amounts?
Banks put lien amounts on assets in order to secure financing that they issue to their customers. In other words, a lien is how the bank is able to guarantee that they can recoup some or all of their money if a client is unable or unwilling to pay back a loan.
Banks around the world use liens in order to secure financial commitments, and effectively protect their own capital. The most basic example of a lien is the bank’s rights to a property during the repayment period of a mortgage, otherwise known as a mortgage lien.
In the event that an individual purchasing a home is unable to meet their ongoing financial obligations set out in their mortgage, the bank (via the lien) is ultimately able to foreclose on the home due to the mortgage lien.
How Do I Remove Lien From My Bank Account?
To remove a lien from an asset, an individual will need to meet any outstanding obligations related to the lien. In most cases, this involves the repayment of financing, such as any outstanding balance on a mortgage or loan.
Once the outstanding obligations associated with a lien have been satisfied, the party that has placed a lien on the asset will release the lien. In certain instances, this may require a direct request to the party. However, in many cases, the process is automatic once financial obligations have been fulfilled.
Do Liens Ruin Your Credit?
Whether liens ruin your credit score will depend on the type of lien over your assets. For example, liens that are entered into consensually (like a mortgage lien) will have no negative weight on your credit. However, liens that are imposed on you through legal proceedings do have a negative impact on your credit score.
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Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into the meaning of a lien in banking. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Why Does My Bank Account Have a Lien?
Your bank account may have a lien if the bank needs to recover outstanding payments, charges, or has been instructed to place a lien on your account for legal purposes. If you are unaware of any reasons why a lean would be on your account, you should immediately contact your financial institution and request further information.
What Does Lien Balance Mean?
Lien balance refers to the total value of a lien secured against an asset. For example, in the case of a mortgage lien, the balance of the lien will reduce depending on the total principal repaid on the property. Similarly, liens on other assets will reduce depending on the financial obligations outstanding in relation to the lien.
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