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The following is for informational purposes only

Voluntary Liens

A lien is defined as “a right to keep possession of property belonging to another person until a debt owed by that person is discharged.” There are multiple types of liens, and they all work differently, but ultimately serve the same purpose: to provide security and a chance to recoup owed debt to creditors. Liens are public records, so they can help alert other creditors that the debtor is having a tough time keeping up with their financial obligations. Liens also prevent the indebted owner of the property, such as a car or a house, from selling it prior to satisfying its already existing debts.

Liens serve to protect creditors, as well as to protect debtors from making bad financial decisions that could exacerbate their already tough financial situations. Often, liens and bankruptcy filings go hand in hand.

What is Considered a Voluntary Lien

A voluntary lien is a claim that a person or entity has over the property of another as security for the payment of a debt. Liens are collateral that is attached to the property as opposed to an individual. A voluntary lien is both contractual and consensual. This type of lien is created by an action taken by the debtor, such as a mortgage loan to buy real estate, where the property being purchased is being used as collateral. If the debtor defaults on the mortgage, the property can be seized as collateral for non-payment, sold, and the funds gained from the sale are used to pay back the debt. While the lien is in place, the property owner cannot legally sell the property. The lien reflects the real value of the property that is being used as collateral. Collateral could be a house, an office building, a vehicle, or anything else that is written into the loan agreement as collateral.

When a person or business owner signs loan documents, they consent to the possibility of a lien in the case of non-payment. The lender has to follow the correct procedures, such as foreclosure or vehicle repossession, and comply with state and federal laws.

How Voluntary Liens are Applied

Although physical property acts as collateral under a lot of liens, there are cases where a voluntary lien is applied to business loans and personal loans with collateral other than cars or homes. This might include credit agreements, equipment, and other assets. The collateral that liens can apply to can be already owned by the debtor prior to the initiation of debt. This could be a vehicle, piece of art, or anything else of value. It just needs to be written into the lending agreement. Businesses could have a voluntary lien that states that if the business owner takes out a loan and defaults, the creditor can put a lien on a pre-specified percentage of business interest. It is vital that borrowers clearly understand the provisions of their loans so that they can have a firm grasp of the consequences for non-payment.

In order to initiate a lien, creditors file documents with the appropriate courts. State by state rules can vary, but it is most common for real estate claims to be filed in the home county of the property. Liens against businesses are usually filed in the court where the business is incorporated. The creditors must show proof of the voluntary lien, which are usually signed loan agreements. If the court approves the lien, it will issue it and record it in the court’s judgment lien docket.This docket is a public index that is regularly reviewed by credit reporting agencies, which is how lien information ends up on credit reports.

Once a lien is approved by the court, the creditors can take steps to recoup funds. If the collateral is real estate, a foreclosure or short sale takes place, with proceeds being used to pay off the lien. A lien serves two main purposes:

  • Allowing a path to getting funds to settle the debt
  • Not allowing the property holder to sell it and take the proceeds while there is a lien on it, thus leaving the creditors without repayment

Personal property liens are only allowed in certain states, like Florida and California. While state laws pertaining to personal liens vary, they all allow the creditors to seize the personal property and notifies buyers that there is a lien on the property, which discourages most sales or ensures that buyers assume the responsibility of settling the lien.


Voluntary liens are extremely common. In fact, they are normally written into most mortgages and auto loans. When they are initiated, it is due to the borrower being in default of the loan, and having to comply because it is part of their loan agreement. It impacts the borrower’s credit and can make it hard for the borrower to get financing in the future. It is important for borrowers to understand their lending contracts prior to signing, and to understand that the initiation of a lien is a likely consequence to not paying off the debt per the loan agreement.

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