What Is a Possessory Lien
A possessory lien grants a creditor the right to remain in possession of a property under the lien until the debtor has satisfied his or her debt. A lien is the legal claim that one person has over the property of another as security for the payment of a debt. The property rests in the hands of, or is possessed by, the individual who grants the lien.
- A possessory lien is when an item is purchased on credit or via a loan where the creditor has a legal claim on the item until the debt is satisfied.
- With most other forms of lien, the borrower gains possession even before the debt is fully repaid, for example with a home mortgage.
- When the debt is discharged, the lien is removed, and full legal possesorship passes to the borrower-owner.
Understanding Possessory Liens
For example, if an individual buys something on credit, the item will not be in his or her possession until the debt to the creditor has been paid. This is different from most liens in the United States, where the lienee is granted possession of the property before the debt is satisfied, as is the case in a home mortgage.
A lien does not constitute ownership; rather, it is a type of encumbrance. Liens are attached to the property and not to a person. The overall value of a possessory lien is derived from the goods that are held in possession. Even with such a lien, the creditor may or may not also have the power of sale, which would allow them to sell off the property in order to recoup their expenses if the debtor fails to pay.
How Possessory Liens Are Applied to Commerce and Trade
The concept of the possessory lien has its roots in commerce from earlier eras. For example, in the past an innkeeper might be granted a lien on the property of the guests for the costs of them sleeping at the inn, having meals, and making use of other amenities there. The possessory was deemed appropriate given the high duty of care innkeepers took on. It is believed that early courts gave the possessory lien structure. It was a means to grant relief against charges in commerce, in particular for the providers of services to others when they were otherwise not able to sue for a reasonable worth and value of those services.
Notably, possessory liens do not include agricultural liens or security interests.
In addition to innkeepers, other forms of commerce and trade can make use of possessory liens. This can include vendor’s liens, pledges of chattels, and garagemen’s liens. For example, if the owner of a car does not pay charges for the towing, repair, and storage of a vehicle, the garage where the car is may hold the vehicle until those costs are paid off. The vehicle could ultimately become forfeit and sold if the garage has power of sale.
View more information: https://www.investopedia.com/terms/p/possessory-lien.asp