How a Lienholder Can Lean on You

By Catherine Powell

Image courtesy flickr

Nobody likes to get leaned on.  That’s a given.  Be it a pushy teacher, a complaining spouse or an ultimatum from the boss, when anyone tries to push any of us around, we tend to push back.  What else can we do?  Human nature being what it is, being leaned on is something that all of us have had to deal with from time to time.  We may not like it, let alone agree with it, but we all know that once someone has a little leverage over us, they’re apt to use it.  In the real world we call someone like this a bully.  In the legal profession, they’re called lienholders.

What the Difference Between a Loan and a Lien?

Anytime you buy something with cash, you own it outright.  Whenever you purchase something on credit, you create a fiduciary contract with the person or entity that loans you the money to make the purchase.  A lien is like collateral that allows a lender to retain ownership of a property until the loan is satisfied.  Whether you’re buying a house, a car, or a new refrigerator on credit, you’re beholden to the lienholder who in essence retains ownership.  Should you fail to keep up with the payments, the lienholder has the right to levy fines, increase your interest rate or even repossess the property.  On the other hand, once the lienholder has been satisfied, such as when you make your final car payment, not only do you own the vehicle, but the bank, dealership or lender who loaned you the money to acquire it will issue you a lien release.  This lien release should then be forwarded to your insurance company so they can remove the lienholder from your auto policy. 

How Does a Lienholder Have Power Over Us?

With major purchases such as a home or a vehicle, lienholders not only have the power to tell us how much and how long to pay, but they also have the right to tell us how much insurance to carry, since they’re bearing the brunt of ownership until the lien is satisfied.  That means if you wish to only purchase the minimum liability insurance for your vehicle, you could be in for a shock when your lender requires you to add collision and comprehensive coverage to your policy.  While you might not appreciate having to increase the insurance cost on your vehicle, the lienholder needs to be sure that should the car be totaled in an accident or swept away by a flash flood, they won’t be left holding the bag.  Some lenders even require you to purchase other options such as uninsured motorist coverage and/or gap insurance.  The bottom line is no lender wants to lose money on a deal.  Having the leverage of a lien puts the lienholder in the driver’s seat until you’ve paid them back in full.  The same goes for a leased vehicle as well.

Is Cash Always King?

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Even if you’re thinking of purchasing a car with cash, a lien can come to haunt you if you buy one from an owner who is still encumbered.  If the car has a lien on it, you could suddenly find yourself thumbing a ride when the lienholder legally repossesses the car a few days later. Even worse, you may even be held liable for the lien once you’ve taken possession of the vehicle.  To avoid getting taken for a ride, as long as you can locate the vehicle’s VIN number, you can contact the DMV to find out if there’s a lien on any car you’re thinking of buying.  A current CarFax will also point out any liens on a vehicle. 

Home Sweet Home?

Even if you own your home outright, there are liens that could literally pull the rug right out from under you if you’re not careful:

      1.      A tax lien can be levied against a property should you fail to pay your federal, state or local taxes.   Once a tax lien is levied, the homeowner only has a limited amount of time to pay up or the government will sell the property to recover the taxes and any penalties.  Not even declaring bankruptcy is sufficient to get you off the hook with a tax lien.

      2.      An attorney’s lien allows a lawyer to put a hold on a client’s property to make sure they get paid for legal services already rendered.  This type of lien is quite common in personal injury cases where the attorney only gets paid a percentage of the award plus expenses only after the case is resolved.

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      3.      A mechanic’s lien is most often brought against homeowners by contractors who weren’t paid for services rendered. This can include roofers, home remodelers and others who go to court to have a judge place a lien on a home to collect what they are owed.  A mechanic’s lien can also be levied against a vehicle provided the debtor has clear title to it.  Some lenders require their customers to turn over the title to their car as collateral before a personal loan will be issued.  Fail to pay in full and the car will be repossessed.

      4.      A judgment lien is sometimes awarded by the court to force the losing party in a lawsuit to pay up.  This kind of lien is commonly used as leverage in small claims court awards.

If you’re forced by the court to sell your property in order to satisfy a lien, you won’t receive a penny until the lienholder is satisfied first.  While filing for bankruptcy may absolve you from having to satisfy some liens, the court may require you to pay others (such as tax liens) even after the bankruptcy proceedings have concluded. 

While a lienholder can use the courts to bully you into paying up, until you satisfy most liens you won’t have a legal leg to lean on.

Catherine Powell is the owner of A Plus All Florida, Insurance in Orange Park, Florida.  To find out more ways to save on flood insurance, check out her website at http://aplusallfloridainsuranceinc.com/