ACCOUNT LIEN: Creditors and their Customers, the Best Practice in Loan Recovery

Lien stands for a lock that has been put on ones or somebody's bank account. When it comes to lien amount you should know that this particular amount has been locked by the bank for a specific time which is only determinable by a creditor, court order, government, or tax authority to prevent further spending of the balance in your account. It could be simply called account freezing.

Doing business is not sometimes easy walking alone. Many movers and shakers of the world economy are borrower people like Bill Gate of US, the Alibaba of China, the Dangote of Africa just to mention very few of them are all borrower. These great men and their  counterparts at a point in their life are nobody in their small world. Each of them took and still taking risk of doing great investment, but do you know where all the investment capital comes? Loan of cause!

When you want to go bigger in business world you must be ready to take the risk involved. While some are called debtors others are referred to as creditors that is the two sides to the coin of business loan. Don't be afraid to be called either names. In this article we are looking at "Creditors and their Customers (Debtors), the best practice in loan recovery." In this part we are discussing lien as an instrument of loan recovery.

The bank has the right of putting the lien on a particular amount or on the entire balance.

What is a Lien?

A lien is a claim or legal right against personal properties or assets that are typically used as collateral to satisfy a debt.

A lien could be established by a creditor or a legal judgement. It serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien. There are many types of liens that are used to secure assets.

How Liens Work?

A lien provides a creditor with the legal right to seize and sell the collateral property or asset of a borrower who fails to meet the obligations of a loan or contract. The property that is the subject of a lien cannot be sold by the owner without the consent of the lien holder. A floating lien refers to a lien on inventory or other unfixed property.

How long can Account Lien last?

You should know that anything that has beginning must also have an end. Money judgments automatically expire (run out) after 10 years. This means the maximum period for any lien is 10 years, the medium term period is 1 year and the minimum period one could experience is  24hours. After any of the mentioned period the lien will automatically expires and the account holder will have access to all the fund in the account. To prevent this from happening, the creditor must file a request for renewal of the judgment with the court BEFORE the expiration of the lien at least 24 hours.

Types of Lien:

There are many types of liens and lien holders. Liens can be put in place by financial institutions, governments, and small businesses. Below are some of the most common liens.

Bank Lien:

A lien is often granted when an individual takes out a loan from a bank to purchase an asset. For example, if an individual purchases a vehicle, the seller would be paid using the borrowed funds from the bank. In turn, the bank would be granted a lien on the vehicle. If the borrower does not repay the loan, the bank may execute the lien, seize the vehicle, and sell it to repay the loan. If the borrower does repay the loan in full, the lien holder (the bank) then releases the lien, and the individual owns the car free and clear of any liens.

Judgment Lien:

A judgment lien is a lien placed on assets by the courts, which is usually as a result of a lawsuit. A judgement lien could help a defendant get paid back in a case of nonpayment by liquidating the accused assets.

Mechanic's Lien:

A mechanic's lien can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the contractor could go to court and get a judgement against the non-paying party whereby property or assets can be auctioned off to pay the lien holder. Many service providers have the option to place a lien to secure payment, including construction companies and dry cleaners. 

Real Estate Lien:

A real estate lien is a legal right to seize and sell real estate property if a contract is not fulfilled. Some real estate liens are automatically put in place, such as the case of a mortgage lien. When a party borrows money from a bank to purchase their home, the bank places a lien on the house until the mortgage is paid off. However, some real estate liens are due to non-payment to a creditor or financial institution and as a result, are involuntary and nonconsensual liens.

Tax Liens:

There are also several statutory liens, meaning liens created by law, as opposed to those created by a contract. These liens are very common in the field of taxation, where laws often allow tax authorities to put liens on the property of delinquent taxpayers. For example, municipalities can use liens to recover unpaid property taxes.

In Nigeria (although yet to take full effect) and the United States, if a taxpayer becomes delinquent and does not demonstrate any indication of paying owed taxes, the Internal Revenue Service (IRS) may place a legal claim against a taxpayer's property, including the taxpayer's home, vehicle, and bank accounts. A federal tax lien has precedence over all other creditors' claims and can lead to public auction or a sheriff's sale as used in United State. A  public auction is a situation whereby assets are repossessed, sold, and the generated funds are used to repay a debt to a creditor, bank, or the IRS.

A tax lien also affects the taxpayer's ability to sell existing assets and to obtain credit. The only way to release a federal tax lien is to fully pay the tax owed or to reach a settlement with the IRS. The IRS has the authority to seize the assets of a taxpayer who ignores a tax lien. Typically, the IRS uses liens for delinquent taxes as a last resort following all other options being exhausted, such as collection, installment repayment plans, and settlement.