Basic Lien Concepts
A “lien” is a right owned by a creditor which enables them to seek repayment of the debt owed them by foreclosing on a specific asset or class of assets, owned or possessed by the debtor. The asset that is “secured” by the lien is called the “collateral.”
A home mortgage is a type of real property lien, which enables the mortgage lender to foreclose on the real property to collect the debt owed by the property owner. A “foreclosure” is any time a creditor causes the collateral to be sold in order to satisfy the debt.
A lien comes into existence when it “attaches” to the collateral. This requires 1) a security agreement (or, as we will see, an applicable statute), and 2) that the debtor has rights in the collateral (such as, they own the collateral).
After a lien “attaches” to the collateral, the lender (now called the “secured party”) may enforce the lien against the debtor.
However, if the secured party wants to enforce the lien against third parties, the secured party must “perfect” the lien – that is, give notice to third parties that the secured party has a lien on the collateral. Once a mortgage is “perfected,” the secured party’s right to foreclose on the collateral is superior to (or, “has priority over”) all third parties (with many exceptions).
In the case of a home mortgage, for example, the mortgage lender perfects the mortgage by recording the mortgage in the public records of the county where the real property is located. That way, if the property owner ever sells or conveys the real property (voluntarily or involuntarily), the mortgage lender gets first dibs on the “proceeds” of the sale.
“Perfecting” a lien is also the purpose of filing a UCC-1 form with the Secretary of State – filing such a form gives “constructive notice” (that is, the filing is deemed to put the world on notice) to all third parties that the secured party has asserted a lien over the collateral described in the UCC-1. While many people think a UCC-1 form must be filed to CREATE a lien, that is incorrect – the UCC-1 is only about notice, and does not in and of itself create a lien.
State statutes often have provisions which give lenders statutory liens in certain circumstances. For example, if you provide a team of laborers to harvest a crop, Oregon law provides that you have a lien on that crop to secure payment for the services you provided. Because of this statute, you don’t need to have a security agreement with the person who owes you money. Similarly, if you repair a piece of equipment, Oregon law allows you to hold on to it until you get paid, even if the person who owns the equipment hasn’t agreed you can do it. Some statutory liens require the secured party to maintain possession of the collateral to maintain the lien, and some require the secured party to file notices with the Secretary of State for the lien to be effective.