A lienholder is a person, group of persons, organization, or financial institution that holds a lien – a legal right to stake a claim in an asset of value. If you have taken out a mortgage or a car loan, you’re likely familiar with the term.
There is no escaping a lienholder as a Canadian if you’re taking out a mortgage or a car loan. In this article, you’ll find all you need to know about liens and lienholders.
What is a Lien?
A lien is a right a person(s) has by law to stake a claim in an asset of value in situations where an existing debt has not been fully repaid. Generally, a lien is placed on assets like homes and cars.
A lien gives creditors like credit unions and banks the chance to retrieve whatever you owe them. Note that a lien is not permanent; it can be removed. Once a lien is placed on your asset, you don’t have much control over the property. Creditors can stake in the property to get what you owe them.
Types of Lien
There are different types of liens, and anyone can be placed on the titles of your assets. They include;
- Mortgage lien
A mortgage lien is placed on your home when you take out a mortgage. A mortgage lender does this till you pay off your debt.
- Car lien
If you take out a car loan to finance your card purchase, your lender can place a lien on your car until you fully repay the car loan.
- Contractor lien
A contractor lien has to do with contracts. If you hired a contractor to do work (repair or maintenance) on your home and you’ve not been able to pay the agreed fee or owe the contractor money, a lien will be placed on your home. The contractor may decide to file a lien, and until you pay what you owe in total, the lien will remain on your asset.
- Tax lien
A tax lien is put on your assets by the government if you have any outstanding income taxes or business taxes as a penalty.
- Judgment lien
A judgment lien is usually placed on your asset after a court rules in favor of your creditor. This is after you’re unable to meet all financial rights and your creditor sues you.
Who is a Lienholder?
A lienholder is a person, organization, or institution that holds a lien. This person can be a lender, an individual (contractor), a bank, or a financial institution. As a lienholder, you can stake a claim on a specific asset as collateral, and when the money owed is recovered, you’ll no longer hold a claim to the property.
You can also be a lienholder if you have trouble getting someone who owes you to repay you. You can file claims, and when your lien is registered, the court will serve the debtor a lien.
If a debtor does not repay a loan on time, the creditor can hold on to the lien. The duration depends on when the debtor repays the loan in full.
If the lien on the title of a home or asset is more than one, the first lienholder in line will be repaid first before the others. This repayment is known as the first lien.
The first lienholder has an advantage over the others in line because if the borrower defaults, the first lienholder can foreclose on a home (in the case of a mortgage lien) and sell the house. Also, they’ll be the first to get paid from the proceeds of the home’s sale.
How to Check for Liens on your Assets
Liens are public records in Canada, so you or anybody can find out if there are liens on your assets. If you want to buy a car, you can check with the Ministry of Transportation. You’ll be required to provide the Vehicle Identification Number (VIN), the model, and the year to access this record.
If you own the car, you can check with your dealer or lienholder. However, if you purchase a vehicle with a lien, you won’t be able to register your car in Canada.
You can conduct a title search via either a title company or the Local Land Registry Office in your province for verification for those who want to buy a house.
How to Remove a Lien from your Asset
Lien titles on your assets can make them hard to sell. You can also lose your property if you’re unable to pay off your debt. The best way to remove your lienholder is by paying off the debt in full. The lienholder will then issue a clearance certificate to invalidate the lien.