Financial Word of the Week: Lien

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What is a Lien?

When a borrower uses collateral to get a secured loan,the lender has a legal claim to that collateral. That legal claim is the lien. Lenders most commonly place a lien on a home for a mortgage and on a car for an auto loan. When a creditor places a lien, the creditor must be paid and the lien released before the property can be sold. For secured loans, the lien is created voluntarily.

Liens and Car Loans

When you buy a vehicle using an auto loan, the lender places a lien on the car title with your state motor vehicle office (depending on where you live). That lien will remain on the car title (even if the car is subsequently transferred) unless the lender issues a lien release. A lender releases a lien by notifying the proper officials, usually upon payment in full of the loan. This is an important step to research when selling or buying a vehicle privately. When you buy or trade-in with a car dealership, they usually assist with this process.

Liens and Mortgages

Houses and other real estate can have more than one lien. If you have a mortgage and use your home for another loan or line of credit, the second lender will put a lien on your home. One lender will have a first lien, meaning that in the event of non-payment, they get paid first. The other lender has a second lien position, meaning they will be paid after the first lender.

UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.