What is a lien?

A lien is a legal right or interest that a lender has in the borrower's property. It serves as a guarantee for the repayment of a loan, ensuring that the lender has a claim on the property in case the borrower fails to meet their financial obligations. This means that if the borrower defaults on the loan, the lender can take specific actions, such as foreclosing the property to recover the outstanding debt. Liens are often used in situations like mortgages, where the lender holds a lien on the home until the mortgage is fully paid off.

The concept of a lien is crucial in personal finance as it indicates the seriousness of borrowing and the implications for asset ownership. Understanding liens helps individuals navigate borrowing agreements, the consequences of default, and the potential impact on future financial transactions. This is why recognizing that a lien involves a legal claim on property is important for anyone learning about personal finance and how it interacts with legal and financial obligations.