A lien bond is a legal document that names a person's property as collateral against a loan. It is used to ensure that debts are paid. If the debt is not paid on time, the property may be seized as payment. Specific legal situations determine the type of lien bond that will be used. In the United States, the term lien bond has a broader definition than that used in other countries.
The legal provision of a lien bond is available in almost any country that operates under a common-law system. In a common-law system, the law is developed by court decisions made by judges; it emphasizes legal precedent over a case by case interpretation of law. This kind of bond is basically a contract between two people or organizations. The owner of the property, who is offering the property as collateral, is called the lienor. The person awaiting payment against the debt, who accepts the property as collateral, is called the lienee.
In the United States, liens can be entered into either voluntarily or involuntarily. A lien that is created voluntarily is called a consensual lien. It is created by a contract agreed upon between two parties. For example, when a homebuyer signs a mortgage, he or she is entering into a consensual lien bond with the bank that is offering the loan.
A non-consensual lien is one imposed on the lienor by a creditor. The law sets out certain situations in which it is permissible to impose a lien bond on a debtor. Some common situations include a tax lien, in which land or other property can be seized to ensure that property or income taxes will be paid. A mechanic lien is placed against property to acquire payment for services performed. This is similar to an attorney's lien, which is used to attain payment for legal services.
Common-law outside of the United States allows for two basic kinds of liens, special liens and general liens. Special liens are similar to non-consensual liens in the U.S., in that there must be a close link between the property used as collateral and the debt that led to the lien. For instance, if a debtor owes a mechanic for fixing a vehicle, the mechanic can put a lien on the debtor's car but not on his house. As the name implies, a general lien can be made against any property owned by the debtor.
