What is a voluntary lien?
A voluntary lien is a type of lien in which the owner of a property grants another party legal claim to that property as a guarantee for payment of a debt or a service rendered.
A voluntary lien is also called a consensual lien. When someone takes out a mortgage to buy a house or a loan to buy a vehicle, he has created a voluntary lien because the house or car is collateral for the loan. By taking out the loan, he has consented to the lien. There are other instances in which a lien would be used as security:
- Business loan
- Credit agreement
- Personal loan with collateral
- Rent-to-own appliances or furniture
Although the lien is usually placed on the property for which the loan is obtained, that isn’t always the case. Sometimes the property secures the acquisition of a cash advance or line of credit. The lien holder doesn’t take possession of the property, but he takes a security interest in the property. The owner cannot sell the property while there’s a lien on it. If the borrower defaults, the lien holder may take possession.
Voluntary lien example
Mitch and Sandra bought their $150,000 home by taking out a mortgage loan, thereby consenting to a voluntary lien on the house to secure the loan. In 2016, they made their final mortgage payment to the bank. After 15 years, their home was completely paid off and, therefore, legally and entirely theirs.
One year later, the roof on their daughter’s home was severely damaged in a storm. But the daughter had poor credit and could not afford a new roof, so Mitch and Sandra decided to help her by paying for it themselves. They borrowed against the equity they had in their house to pay for it, once again creating a voluntary lien on their property until the equity loan was fully repaid.
Use Bankrate’s personal loan calculator to figure out your payments.