Liens

• Liens are legal arrangements in which a debtor give the creditor some form of limited ownership interest in the debtor's property in order to guarantee the debt. Not all liens are granted voluntarily; sometimes a court will award a creditor a lien on a debtor's property. Some common varieties of lien include mechanic's liens, in which someone who does work on property receives a lien on the property until they're paid for their work, and judgment liens, in which a party who wins a civil judgment receives a lien on the opposing party's property until the judgment is paid in full.
  
  

How Liens Work

• The key element of a lien is that it does not grant a creditor ownership of the debtor's property. Rather, the lien represents the creditor's right to take the property if the debtor defaults on the debt. For instance, some jurisdictions allow a "landlord lien"; when a tenant owes rent to the landlord and fails to pay, the landlord can seize the renter's personal property from the premises and hold it until the renter makes payment. The landlord doesn't receive outright ownership of the renter's property; he only has rights to the property until the renter makes the payment. Liens are security interests, not ownership interests; however, some types of lien may adversely affect the debtor's credit report.
  
  

Mortgages

• In a mortgage, a debtor (the mortgagor) will grant a creditor (the mortgagee) a security interest in his real property until the debt is paid off. The mortgagor can typically end, or redeem, the mortgage by paying off the debt in full, at which point he regains full ownership of the property. However, if the mortgagor fails to pay as agreed, the mortgagee can foreclose; he can take the property and completely extinguish the mortgagor's ownership interest.
  
  

Theories of Mortgage

• Mortgages and liens are not the same thing, but the "lien theory" of mortgage, followed in some states, treats the two in a similar manner. In lien theory, a mortgage, like a lien, does not give the mortgagee ownership of the property, only the right to take the property if the mortgagor defaults. But in other states, under the "title theory" of mortgage, once the mortgage is executed, the mortgagee actually holds title to the property. The mortgagor only has the right to win his property back by fulfilling all of the terms of the mortgage. In title theory states, mortgages and liens operate very differently.