Contractual Lien
Definition and meaning of Contractual Lien in real estate.
A contractual lien is a voluntary legal claim placed on a property as a result of an agreement between the property owner and a lender. The owner consents to this lien in exchange for financing, using the property as collateral to secure the loan.
In more detail
The most common examples of contractual liens are mortgages and deeds of trust. By signing these documents, the borrower gives the lender the right to foreclose on the property if they default on the loan payments. Because the owner chooses to enter into this agreement, contractual liens are classified as voluntary liens.
This distinguishes them from involuntary liens, such as tax liens or mechanics liens, which are placed on a property without the owner consent.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Lien type | Voluntary lien |
| Common examples | Mortgages and deeds of trust |
| Lender right | Foreclosure if the borrower defaults on the loan terms |
A homebuyer signs a mortgage agreement, which creates a contractual lien on their new property that remains in place until the loan is paid off.
Frequently asked questions
What is the difference between a voluntary lien and an involuntary lien?
A voluntary lien is agreed to by the owner to secure a loan, like a mortgage. An involuntary lien is placed by a third party for unpaid debts, like tax liens.
How is a contractual lien removed from a property title?
A contractual lien is removed when the borrower pays off the debt in full and the lender files a formal lien release or satisfaction of mortgage.
Related terms
Sources & references
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