What Is a Lienholder?

 

While some car buyers are able to pay cash for their automobiles, many others take out a car loan in order to purchase the vehicle they want. If you borrow money for this purpose, whether from a bank, a credit union, a car dealership or even a private party, the lender will hold a legal claim on the vehicle. This claim is known as a lien.

The lender, known as a lienholder, will have a legal interest in your vehicle until such time as the loan is completely paid off. Having this legal interest in your property, your lienholder has certain rights and may require you to fulfill certain obligations. These include having the lienholder named as co-owner on your title and on your insurance documents. They may also require you to carry a certain type and amount of car insurance on your vehicle.

Your Home Mortgage is a Lien

If you are buying your house with the aid of a mortgage loan provided by a financial institution, the company that provided the purchase funds automatically became a lienholder for your home. They have a legal claim on your property and will require that you have an appropriate amount of homeowner's insurance in force. This is to protect their financial interests in the event that your home becomes damaged or destroyed by some unforeseen event.

Certain debts owed in conjunction with your home may also become liens. These may include:

• Overdue taxes
• Unpaid construction costs
• Judgements
• Unpaid and overdue association fees

In actuality any property that you own that was bought with money from a loan can have a lien put against it until the loan is paid off. If the loan payments are not made as agreed on, the lienholder may have the legal right to repossess the property that has gone into default.

What a Lienholder Requires

Getting back to your vehicle purchase with borrowed money, whatever financial institution lent you the money to buy the car is the lienholder and will require some certainty that they have financial security regarding the transaction. While the State of NC requires all drivers carry a minimum amount of liability insurance in case they cause injury or property damage while driving, your lender will likely require you carry collision coverage, in case you're in a collision accident, and comprehensive coverage, for non-collision losses such as fire, theft, vandalism, extreme weather, etc.