What is a lien?

A lien is a legal right or interest that a lender has in a borrower's property, which serves as collateral for a debt. This means that if the borrower fails to meet their repayment obligations, the lender has the right to take possession of the property to satisfy the debt. Liens are crucial in real estate transactions as they protect the lender's investment by ensuring there is a claim on the property until the loan is paid off.

Understanding this concept is essential in the realm of mortgages and lending, as it outlines the security interest that lenders maintain over the property associated with the mortgage. This security is fundamental to the lending process, as it reassures lenders about the recovery of funds in the event of default. The other options describe different aspects of financial obligations and agreements but do not accurately reflect the specific nature of a lien.