An Explainer: Lien

To ensure borrowers stick to their commitment of loans, banks keep certain assets as collateral. A lien gives them a legal right over such an asset.

When a buyer purchases an asset after borrowing funds from a bank, the latter have a right to sell off the collateral in case the borrower fails to re-pay the money.  In such cases, the transfer of rights over the pledged assets is known as lien. In case a borrower fails to re-pay the loan, the lender can sell the pledged asset and recover his money. On the other hand, if a borrower repays his loans within a set deadline, the lenders signs the lien the favour of the borrower.

While offering property mortgages, a lien provides financial institutions safety against a loan. In case a borrower defaults, a bank has the legal right to claim the property and sell it off to recover dues. Also, a buyer cannot sell a property as long as the lien is not withdrawn. Home buyers take a loan for the purchase must get the lien on their mortgage withdraw after the repayment process is complete. You must also note here that a lien is registered in the local Registrar's Office and the property title transfer will not be clear till you get it withdrawn.