What's a Lien Holder?

When a bank, credit union, financing company, or even a person loans money they will often want security in property to protect their loan in case of default. The theory goes that if the person borrowing money can't pay the loan back, at least they will hand over the property that has a lien on it from the debt. The lienee is the person receiving the lien (and usually loaning the money), and the lienor is the person granting the lien (and usually borrowing money).

An example is if you buy a car and it's bank financed. The bank may ask to become a lien holder in order to get the loan. There are other types of liens including a mechanics lien, usually created when a car is repaired and the person doesn't have enough money to pay for the repair. Contractors can get liens on real property (homes, offices, and other structures/buildings) if they perform work on the property.

If the property has a paper title issued by a government body, the title can typically have a written lien placed on it so that anyone buying the property is given fair notice that the property also carries with it debt. Property with a lien can still be bought and sold (although a sale may trigger a "due on sale clause"), but the person buying the property also assumes the debt. That's why it's important to check for liens on any property that you buy, especially if it's expensive and easy to get a loan on.

Perhaps the most common type of lien on small value property is the liens placed on personal property used as loans at pawn shops. A person pawning an item may still own the item while it's pawned, but almost never have the right to take it without first paying the loan balance.