What is Lien?
A lien is a legal right or interest a lender or creditor has on a borrower’s property, typically as security for a debt or obligation. It ensures that the creditor can claim the property if the borrower fails to meet the debt repayment terms. This is common in various types of property insurance and real estate transactions.
In personal and business insurance, liens can arise when a lender provides a loan for a home or vehicle. For example, in the case of car insurance, if the vehicle is financed, the lienholder (usually the bank or financial institution) has an interest in the vehicle until the loan is fully paid. If the borrower defaults, the lienholder may repossess the car. Similarly, a mortgage lender holds a lien on a home until the mortgage is satisfied.
Liens can affect property transactions, as any outstanding lien must be cleared before the property can be sold or transferred to a new owner. This means that insurance claims or settlements may involve paying off a lienholder before the insured can receive compensation.