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Definition and Examples of Perfected Liens

A perfected lien is a lien that meets all the criteria, including providing the appropriate agent, to become valid and enforceable. These liens are presented by the creditor against the debtor in the event of non-payment of the debt.

How Does a Perfected Lien Work?

If you have financed a car or a home in the past, chances are you have heard about a lien. A lien is simply a way for a creditor to secure their interest in your property in case you are unable to pay your debts.

Liens are not necessarily a bad thing; they are meant to protect the creditor and provide a legal guarantee to do so. Perfected liens occur when purchasing a vehicle whether you are using dealership financing or have chosen a loan from your own bank.

Let’s say you are in the middle of purchasing a new car from a car dealership. You have decided to take advantage of dealership financing at 0% for 72 months, making your payments more than reasonable.

While signing the papers, you find documents to register the car with the Department of Motor Vehicles. It’s nice that the dealer provides you the ability to register the title while purchasing the vehicle.

In reality, the dealer is not necessarily acting selflessly. When it comes to liens on cars, they will only become perfected once the car is registered and titled with the Department of Motor Vehicles. At that point, the creditor will be listed on the title as the lienholder. Until that process happens, the creditor is uninsured and exposed to risk if you default on the loan.

Note: You will need to remove the lienholder from the title of the vehicle if you wish to sell your car. The process differs in that regard, so check with the Department of Motor Vehicles in your state for the details.

What Does a Perfected Lien Mean for You?

In many cases, a perfected lien will not affect your daily life. It is only when you become unable or unwilling to pay your debts that the perfected lien will be activated.

Perfected liens are valid and legally enforceable, meaning the creditor will be able to use them to ensure repayment. This is true whether your lien is consensual or non-consensual.

In the event of your default, a perfected lien gives the creditor the legal right to seize your assets or property to recover their funds.

For example, when defaulting on a mortgage, the creditor has already established that you cannot sell your property without settling their lien. Once you default, they may also initiate eviction proceedings, making you sell your home so that the proceeds can be used to pay off your debts.

Takeaway

A perfected lien is a lien that meets all the requirements to be legally enforceable. A perfected lien secures the creditor’s interest in the property.

Liens are a burden on your property that protect the creditor in case of non-payment of your debts.

Sources:

Experian. “What Is a Lien?”

State of California Department of Motor Vehicles. “​​Electronic Lien and Title Program.”

Source: https://www.thebalancemoney.com/what-is-a-perfected-lien-5219944