What is a Lien? And Other Loan Terms to Know

In commercial real estate,understanding the financial and legal terms behind a deal isn’t just helpful, it’s essential - and one of the most important terms you’ll encounter is the lien. 

Liens can affect everything from financing approvals to title clarity and transaction timelines. Whether you’re a buyer, seller, broker, or investor, knowing how liens work helps you spot red flags early and keep deals on track. In this guide, we’ll break down what a lien is, how a lien works in commercial real estate, and why it matters.

What is a Lien?

A lien is a legal claim against a property used to back a debt or unpaid obligation. When a lien is recorded, it gives the lienholder (usually a lender, contractor, or government agency) a legal claim to the property until the debt is paid.

A lien turns the property into collateral. It doesn’t transfer ownership, but it does limit what the owner can do. For example, a property with an outstanding lien may be difficult to refinance or sell until that claim is satisfied.

Voluntary vs. Involuntary Liens

Liens fall into two categories based on how they’re created:

• Voluntary liens are those that a property owner agrees to, such as a mortgage or commercial loan. These are typically part of the financing process and are expected.
• Involuntary liens are imposed by law due to unpaid debts or legal judgments. Common examples include tax liens, mechanic’s liens (filed by contractors or vendors), and judgment liens from court rulings.

As an investor, it is crucial that you understand what type of lien a property has, so you are able to accurately assess its legal and financial standing.

Common Types of Liens in Commercial Real Estate

Here are the lien types CRE professionals encounter most often:

• Mortgage Lien: Placed when a loan is secured by real estate. The lender holds this lien until the debt is paid off.
• Tax Lien: Issued by the government for unpaid property taxes. These often take precedence over other liens.
• Mechanic’s Lien: Filed by contractors or suppliers when payment for labor or materials hasn’t been received.
• Judgment Lien: Created through a court decision, allowing a creditor to claim a debtor’s property to satisfy a debt.
• Landlord’s Lien: In some commercial leases, landlords may have a lien on tenant-owned assets in the leased space until certain obligations, like unpaid rent, are fulfilled.

How Liens Affect Commercial Real Estate Deals

Liens can complicate the deal process if not identified and addressed early. During due diligence, a title search will usually uncover any outstanding liens. If issues are found, they can delay closing or lead to delays or even deal renegotiations.

Lenders generally require clear title before funding a deal, so any existing liens must either be paid off or legally subordinated. In sale or refinance situations, liens need to be resolved prior to closing. Title companies usually coordinate the payoff and release of liens as part of the transaction.

Can a Property Have Multiple Liens?

Yes, and the order in which they were recorded determines their priority, a concept known as lien hierarchy. Senior liens (those recorded first) are paid out before junior liens if the property is sold or foreclosed on. For investors, understanding lien priority is crucial. A second or third lienholder might not recoup their money if the sale proceeds don’t cover all debts.

How to Remove a Lien

Generally, the simplest and most straightforward way to remove a lien is to resolve the underlying obligation. Once the debt is satisfied, the lienholder provides a lien release, which is then recorded with the county.

Most liens are removed by paying off the underlying debt. Once the obligation is satisfied, the lienholder issues a lien release, which is filed with the county recorder’s office.

Other ways to remove a lien may include:

• Negotiating a settlement or reduced payoff (particularly common with judgment or contractor liens)
• Disputing the lien through legal action (if there is question about its validity)
• Filing for bankruptcy, which may result in some liens being discharged (depending on the case)

How to Search for a Lien

Before you commit to a property, it’s crucial that you search for liens during the due diligence process. There are a few ways to find a lien, including:

• Order a title report from a licensed title company
• Search county property records where the property is located
• Use online property data platforms with lien tracking capabilities
• Work with a real estate attorney or local broker who knows the area’s lien laws

A thorough lien search can save you time, money, and costly legal issues later on.

Why Liens Matter to CRE Professionals

A lien isn’t just an inconvenient detail; it’s an important factor that can impact deal timing, financing terms, and exit strategies. A clear understanding of lien status empowers brokers, investors, and lenders to assess risks more effectively and avoid last-minute disruptions.

At Crexi, we help commercial real estate professionals simplify the search and evaluation process. With Crexi Intelligence, you gain access to detailed property data, including ownership and transaction history, so you can quickly identify potential red flags - like existing liens - and make informed decisions with confidence.