A foreclosure on ones home may be necessitated in order to pay off a lien.

What first is a lien and why is it that powerful? Understanding foreclosures will assist us here

First of all, a lien is a legal claim against an asset/property that is used to secure a loan. A mortgage is therefore a lien because once your property is sold, you are compelled to pay off your mortgage lender first.

One of the most horrid liens is that from the IRS. Many have been forced to foreclose their homes in order to pay off the tax man lest they be thrown into jail. And once the property is sold, the IRS gets paid.

Another is a judgment lien where a house has to be sold in order to pay off a court settlement. America is a litigious society with a tort system designed to encourage large settlements for aggrieved parties. The defendant may have to sell his home if necessary to meet up with this settlement. Some settlements are designed for the sole purpose of bankrupting the defendant. This might have been the case with O.J Simpson who was saddled with a $25million settlement brought about by parents of his deceased ex-wife and lover.

Then there is the mechanic lien which is a legal claim to a property the workers for work carried out on it. Other names for it are construction lien, laborers' lien and so forth, all depending on what type of work or workman was involved.

These workmen liens exist to protect the contractor due to risk of non payment for services rendered. This is especially true for subcontractors where the main contractor may default on their financial obligation to them. This provides the tradesmen financial protection in case there is a default.

Of course, the most popular lien that leads to foreclosure is the mortgage provided by a lender. The lender is obliged to receive payment periodically from the borrower and failure to do so, will lead to the foreclosure of the home to enable the lender recover the money lent. Understanding foreclosures to most people boils down to the mortgage lien.

Were it not for the recent cut in Fed rates, millions of more homes face foreclosure this year. Anyway, it is still too early to say. All depends on when the lenders begin to extend the reduction in lending rates to their borrowers as happened in the early part of this century.

We are all waiting!

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