“OWE, v. To have (and to hold) a debt. The word formerly signified not indebtedness, but possession; it meant ‘own,’ and in the minds of debtors there is still a good deal of confusion between assets and liabilities.” – Ambrose Bierce, The Devils Dictionary.
In 2021, 94% of home purchases were financed with a mortgage. The rest of the purchases were made with cash. For the majority of us, this means we will likely mortgage the purchase of a home if we enter into homeownership. Although six percent is not a small number when considering all the homes bought and sold in the USA within a 12-month period, evidence suggests many of these cash purchases are for second homes (vacation, investment, etc).
When pursuing a mortgage, it is important to know what steps the financial institution takes upon agreement to pay back the loan. The financial institution takes a vested interest in the mortgagee paying back the loan, and so they place conditions allowing them to assume ownership in the event the mortgagee fails to pay back their loan.
These conditions are known legally as a lien. This word comes from a very early root “leig” which meant to tie or bind. Words like ligament, religion and league all derive from this same root. When first used in 1531, lien meant the right to legally hold ownership of a property until a debt is paid. In this sense, the lender has the right, by contract, to take back a property if the debt is not fulfilled.
Liens take different forms based on who files them. When we agree to finance a home, we agree in writing to a voluntary specific lien. The lien is voluntary in that we agree to allow the bank to place the lien on the property as a condition for receiving the loan. The lien is specific in that it typically only pertains to the property being purchased. Occasionally the lien may pertain to other parcels, but this is only by the borrower volunteering them as additional collateral.
After closing, the financial institution will file a legal document with the courts stating that we, the homeowner, agreed to finance our home through them in exchange for a lien being placed against that property until such time as the loan is fully paid. This is called, “perfecting the lien.”
Because this is a legal process and binds us as borrowers, it is critical that financial institutions ensure we can pay back any money borrowed. No good banker wants to exercise the right to foreclose and take back ownership of that property. This is why we at Farmers and Mechanics pay special attention to how much debt an applicant has and what capacity remains to pay back what might be owed. Through our cautious approach, we have successfully gone 13 years without foreclosing on a property.
I guess you could say, we’re a bank you can lien on.
Joshua Riggins is the president of Farmers & Mechanics Federal Bank in Bloomfield, and is committed to providing customers with a reliable and competent banking experience.