What Is a Lien Release?
A lien is a determination of interest that secures the financial investment of one entity in the property of another. Automobile financing agencies and mortgage brokers hold the majority of liens in the United States. Once the loan is paid, the lender issues a lien release, indicating that they no longer have any financial interest in the item or the property.
Function
A lien release provides the owner or the lender with the assurance that no other parties have a financial stake in the property. If you financed a new car through a lender, after you make the final payment, the lender will review your account and send you a lien release. This document states that you have paid your loan in full. In addition, the lender will send an automobile lien release to the state titling agency and you will receive a new title with the previous lien-holder's name removed.
Time Frame
The lender should release a lien within 30 days of your final payment, but if you don't receive a document to that effect, contact the lender and request one. If you hired a contractor to build a new house, your bank can assist you in obtaining lien releases before making the final payment to the contractor. In this case, the bank will obtain signed releases from all subcontractors before releasing the funds to the contractor and rolling the construction loan into a home mortgage. If you are paying your contractor with your own money, request all lien releases before you make the final payment.
Types
Not all lien releases relate to the purchase of property. A mechanic's lien is a recorded document that binds the title of real estate and, until the lien is released, the owner may not sell the property with a clear title. A mechanic's lien may quietly cloud a title for years, unknown to the property owner. If a contractor, subcontractor or any other person provides a service on a property and does not receive payment, the person may file a mechanic's lien against the property. A Quiet Title lawsuit, brought by the seller, may release the lien, or the owner may pay the debt and obtain a release (see Resources below).
Identification
State titling agencies and county Register of Deeds offices identify and enforce liens against vehicles and real estate, respectively. However, liens may also come into play during the commission of a contract between two or more parties. If you sell a tractor to your neighbor, on contract, in return for payments and your neighbor defaults, your signed contract serves as a lien, allowing you to file a lawsuit and receive a court judgment for the amount due or the return of the tractor. Release a personal lien by issuing a receipt to the purchaser, stating that the amount owed is paid in full.
Prevention/Solution
Use a general lien release form, which you can get from an attorney or online (see Resources below), when you need to ensure that a former creditor has relinquished all interest in your property. This is an important process when you sell a vehicle for which you still owe money. Contact the financing company and ask how they would like you to proceed with the sale. If the lender is located in another state, you may often use a local bank to oversee the exchange of the money and the payment of your existing loan.
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