Lenders put a lot on the line when providing lines of credit to individuals. While a Minnesota lender certainly hopes that all goes well with the transaction and that the loan is repaid as necessary, financial professionals also know that it is important to limit the risks involved with certain loans. As a result, a possessory lien is sometimes placed on certain property
A possessory lien differs from other types of liens because the possessory lien goes into effect almost at the same time as the loan. This means that the creditor still has a claim to the property on which the loan is placed until the debt is repaid. At the time the debt is repaid, the possessory lien is no longer in effect, and the borrower then becomes the owner of the property free and clear of the lien.
Possessory liens can help protect the interests of the lender in the following ways:
- The lender maintains legal ownership of the property.
- The lender could have the ability to sell the property in the event that the borrower defaults on the terms of the loan.
- The value of the lien comes from the value of the property, and in the event that the lender must sell the property, the proceeds would go toward covering the loan unpaid by the borrower.
Of course, even with a possessory lien in place for protection, Minnesota lenders could face complications with borrowers who do not pay. As a result, it may be necessary to enforce creditor rights in the event of a default or if the borrower files for bankruptcy. This situation can be tricky to navigate, but lenders can obtain legal assistance to ensure that their rights and the terms of their liens are upheld.