A vendor’s lien is a claim held by a seller on either personal property or real estate, allowing the seller to repossess the property under certain circumstances. It most commonly kicks in when a buyer has fallen behind on payments relating to the property. Once the payments become delinquent, the seller can reclaim the property and choose to either sell it or hold on to it. Vendor’s liens can be negotiated on anything from a car or household appliance to a piece of real estate.
The laws in a particular jurisdiction generally dictate what kinds of property can be secured by a vendor’s lien. Some common categories of liens include those required by jewelers, banks or other financial lending institutions, dry cleaning and laundry service companies, and storage facilities. An automobile mechanic may also take out a vendor’s lien on a vehicle if a customer fails to pay repair bills.
A vendor’s lien usually prevents a borrower from selling or transferring title to a property until the title has been cleared. Essentially, the property remains the seller’s until the borrower has completely paid it off. The existence of a vendor’s lien is ordinarily reported on a borrower’s credit report. If a borrower defaults on a payment, his or her credit score is usually lowered.
A vendor’s lien can be discharged once the borrower remits all outstanding payments to the seller. Once a borrower satisfies a lien, he or she no longer owes the seller anything. The borrower should, however, require the seller to sign a written document evidencing that the lien has in fact been satisfied. Depending on the type of lien, the borrower may need to record a satisfaction of lien document with a government office. This is particularly common for liens involving real estate.
A purchase money mortgage, or seller financing, is a type of vendor’s lien in which a seller has the right to repossess a piece of real estate from a delinquent buyer. It is commonly used when a buyer has poor credit and cannot secure a loan from a bank or other lending institution. With a purchase money mortgage in lieu of, or in combination with, borrowing money from a lending institution, the buyer takes out a loan from the seller. Most of these mortgages are secured by a deed of trust from the buyer to the seller. If the buyer fails to make his or her scheduled payments, the seller generally has the right to bring foreclosure proceedings against the buyer.