If you’ve ever used a piece of property as collateral on a loan, having a lien release form filed by your creditor is great news for you. It means you’ve paid off a loan or another debt, which is a big financial relief. But what exactly is a lien release form, and what is it for?
If you’ve gotten a lien release form or you have a loan you’re almost finished paying off, it’s important to understand what role a lien release form plays. Take a look into the basics of these forms, including what they are, what they do and how to fill one out properly.
What Is a Lien Release Form?
A lien release form is a legal document a creditor files to remove a lien on property you used as collateral to obtain a loan. To really understand what this means, it helps to understand what a lien is and why lenders use liens.
A lien usually comes into play whenever you owe someone a large amount of money. To ensure you pay the money back, the creditor may file a lien, which gives them the legal claim to a certain piece of your property in the event that you don’t make your loan repayments.
If you’ve borrowed money to buy a home, you may find yourself unable to sell it until you’ve satisfied the terms of your lender’s lien by paying off your mortgage. Creditors can also take liens out on pieces of personal property. If, for instance, you owe a mechanic for servicing your car, they could take out a lien on your vehicle if you don’t pay your bill.
Contractors can also use liens to ensure customers pay for the materials and services the contractors provide for projects. Courts can even impose liens when people fail to pay taxes or during foreclosure lawsuits.
How to Get a Lien Release Form
A lien release form is used to end any claim your creditor may have on your property once you’ve fulfilled your debt. It’s basically a legal way of verifying that you and your creditor are now “fair and square.”
The average lien release form is relatively short and specifies things like:
- The amount of money that the borrower owed
- The identities of the borrower and lender
- The reason the borrower owed the lender money
- That the lender legally releases any claim to the property used as collateral
- That the loan has been fully repaid
The lien release form is official once both parties and a notary sign it. Make sure you keep a copy of any lien release form you sign. It serves as an official receipt to prove your lender has released you from any loan repayment obligations or claims to your property.
Lien Release vs. Lien Waivers
While the terms “lien release” and “lien waiver” are often used interchangeably, these documents actually serve two different legal purposes. Once a borrower has met certain conditions, a lien release is used to officially end a lien that a creditor has already filed. A lien waiver, on the other hand, waives the creditor’s right to file a lien altogether.
A lien waiver doesn’t necessarily mean you can skirt around your payment obligations to a certain lender or service provider, though. There are four different types of lien waivers that are commonly used, depending on the situation:
- Partial Conditional: This document is similar to a legal receipt and is issued along with every payment a borrower makes. It waives the lienholder’s claim on the amount of money a borrower has paid but is only considered valid once the payment actually clears.
- Partial Unconditional: This document is used in the same way as a partial conditional lien waiver, but with one big difference. It becomes valid as soon as it’s signed, so the lender may be in trouble if the borrower’s payment doesn’t clear.
- Full Conditional: Whereas partial lien waivers cover partial payments, full lien waivers cover the entire payment of a debt. A full conditional waiver is an agreement that waives the lender’s right to file a lien upon the clearance of the borrower’s final payment.
- Full Unconditional: A full unconditional waiver eliminates the lender’s right to file a lien whether the borrower’s final payment is received and cleared or not.
How to Fill Out a Lien Release Form
If you’re ever required to sign a lien form, whether as a lender or borrower, it’s important to make sure you understand it before signing on the dotted line. Liens are commonly used by a variety of service providers, including financial institutions, construction contractors, car dealerships and mechanics. If you find yourself in the position to issue a lien waiver or release, it’s critical to understand the difference between the two.
In the case of a lien waiver, it’s also important to understand whether you’re waiving your rights to partial or full payment. Also, ensure that the waiver specifies whether the borrower must meet certain payment obligations before the waiver becomes valid. By signing a full unconditional waiver, for example, you’re exposing yourself to risk in the event that the borrower’s payments don’t clear.
Last but not least, make sure you know the laws in your state regarding lien release forms. Some state laws require a lien release form to be filed within a certain amount of time after the borrower’s final payment, while others don’t.
If you find yourself on the borrower’s side of a lien form, it’s equally important to understand what exactly it is you’re signing and the obligations you’re agreeing to fulfill. When in doubt, it’s never a bad idea to have an attorney look over a lien form before you sign in order to make sure you’re properly covered.