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The following is for informational purposes only

Statutory Liens

Liens provide a legal path for lenders and other entities to recover unpaid debt. They are documents that result from laws, legal proceedings or contracts that allow parties that are owed money to place claims on the debtors’ assets. A lien can allow a lender to keep an asset that is already in their possession, repossess an asset, or be mandated to be repaid once a large asset, like real estate, is sold. For debtors, having a lien put on an asset may restrict their next financial move and cause them to face their repayment responsibilities head on. There are a number of different lien types, and this article explores the specifics of statutory liens.

Overview

Statutory liens arise from statutes as opposed to court rulings. In other words, a statutory lien is created because a law says that in certain circumstances, a lien may be created. A mechanic's or builder's lien in an example of a statutory lien – because a statute says that a contractor can put a lien on your house in the amount of money owed to them, they can simply file a form for the amount owed and a lien will be in effect. The contractor does not need to go to court to get this processed.

Different states, cities and jurisdictions have different laws that pertain to liens, so the actual details of liens can vary based on where they are filed. Since statutory liens are created by laws, each jurisdiction may have a different list. Examples include:

  • Mechanics who have not been paid can put a lien on the vehicle that was repaired. This might be for the amount that is owed, but different jurisdictions might treat the final number differently. Some might force the sale of the vehicle, while others might state that the mechanic needs to be the first one paid once the owner decides to sell the vehicle.
  • A dry cleaning business may be given a statutory lien on the items of clothing that were cleaned but not paid for.
  • A storage business may be given a statutory lien on the items in the unit for unpaid rent.

Laws surrounding liens aim to protect the rights of both parties and steer them toward a resolution.

How Statutory Liens Work

Because statutory liens are based on established laws, it is important for anyone wanting to navigate a statutory lien to be familiar with laws pertaining to liens in their jurisdictions. This pertains especially to businesses that do not require upfront payment, but instead rely on billing their customers. With billing after performing a service or selling goods, the vendor always takes a risk, and it is helpful to have procedures in place to collect on unpaid debt, including filing liens.

All statutory liens are filed without going to court. To file a lien, the owed party goes to the city or town hall in which their business is based to fill out the forms required. Once the lien is filed officially, the asset listed in the lien is put on a registry that gets referenced when titles or deeds are pulled for the sale of the asset. Lien registries essentially flag assets like houses, buildings and cars that are going through a change of ownership. In order to obtain the deed or title for the sale of the asset, the lien first needs to be cleared, which only happens when the debt is paid off.

Lien Waivers

In building projects, there exists the option for the client to receive a lien waiver from the builder. This functions like a receipt, as it can only be issued after payment to the builder is made. Lien waivers protect paying customers from having liens put on their properties in error or due to a misunderstanding. In most states, these are not regulated, but in twelve states, lien waivers have to be filed with government offices and follow a specific format.

In conclusion, the most important takeaway about statutory liens is that they can be filed in an easy and expedient way, and do not rely on courts. When entering into a financial contract, it is important for both sides to understand their rights and options when it comes to liens, and to check the laws of the area in which they perform services.

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