A lien is a legal claim or right that an entity or individual has on a property owned by another entity or individual as a security for a debt or obligation the property owner needs to fulfill. It guarantees that the debt or obligation will be paid or fulfilled. If the debtor fails to meet their financial obligations, the lien holder has the right to seize the property, sell it, and use the proceeds to pay off the debt.
In the insurance context, a lien can be placed on an insurance settlement. For instance, if a person gets into a car accident and receives a settlement from the insurance company, a lien could be placed on that settlement if the person owes money to a hospital for medical treatment related to the accident. The hospital would then be paid from the settlement before the person receives any of the money.
Liens can be voluntary or involuntary. A mortgage is an example of a voluntary lien, where the borrower agrees to the lien on the property. Involuntary liens are imposed by law, such as tax liens for unpaid taxes.
Liens can also be categorized as general or specific. A general lien is a right to retain any property belonging to the debtor until the debt is discharged. In contrast, a specific lien is a right to retain only a particular property until the debt associated with that property is discharged.
It’s important to note that a lien can affect the owner’s ability to sell the property, as the debt must typically be paid off before the property can be sold.