A creditor with collateral as security for debt is said to have a lien. A lien is typically defined as "a charge against property of the debtor".  See Bankr. Code 101(37). The Bankruptcy Code provides modern and conventional definitions of much commercial law vocabulary, including the word "lien."  The California Civil Code provides a similar definition of lien. See Cal. Civ. Code 2872. 

     There are three general legal implications to having a lien, each of which gives the secured creditor an advantage unavailable to the unsecured creditor.  First, a lien gives the secured creditor an immediate right, upon an appropriate triggering event (e.g. default by the debtor in payment of money due), to obtain control of and liquidate the collateral. With rare exceptions, the unsecured creditor has no such right and must file a lawsuit as the beginning of a process in which it can ultimately gain access to the debtor's property as a means of enforcing a judgment.   See Commentary.Enforcement of judgment.  Second, a lien gives the secured creditor a claim to the collateral that may be superior to competing claims to the collateral (e.g. such as the claim of someone who purchases the collateral from the debtor or someone who later obtains a lien in the same collateral), entitling the secured creditor to satisfy its debt in full from the proceeds of disposition of the property prior to distribution of any proceeds to the competing claimaint.  The unsecured creditor has no such claim to priority.  Third, a lien entitles the secured creditor to much better treatment than an unsecured creditor in the event of the debtor's bankruptcy (subject to exceptions we discuss elsewhere in Commentary.Avoiding liens in bankruptcy).

     Different types of liens may be distinguished both by the source of their creation and by the kind of property to which they attach. 

     Judicial lien: A creditor that obtains a lien by use of judicial process such as execution, recording a judgment, or attachment, has a judicial lien.  See Bankr. Code 101(36).  We explore the creation of judicial liens in Commentary. Enforcement of Judgment.

     Statutory lien: A creditor has a statutory lien if the creditor obtains a lien by virtue of a federal or state statute or local ordinance granting a lien under defined circumstances.  See Bankr. Code 101(53). As with much law governing the rights of creditors, terminology describing statutory liens may vary among states. Thus, for example, Louisiana talks of creditors with special "privileges."  Examples of statutory liens abound: liens afforded to the Internal Revenue Service by the Internal Revenue Code, on property of delinquent taxpayers (federal tax lien); liens afforded landlords on the furniture in an apartment for failure to pay rent (landlord's lien); liens afforded persons performing maintenance or repair on automobiles for failure to pay for the maintenance or repair; liens afforded contractors and suppliers on works of improvement to real property for failure of an owner to pay for construction or materials (mechanic's lien); liens afforded sellers of real property on the real property sold in the event the buyer fails to make payment when due (vendor's lien); liens afforded warehouses and other storage facilities on property stored to secure unpaid storage fees (warehouseman's lien); and an enormous variety of other statutory liens, differing in kind and particulars among the various states, afforded to those whose lobby was strong enough to persuade a legislative body to grant one.

     We do not consider statutory liens in these materials beyond the preceding brief description. However, we offer the statutory language of three examples to give you a flavor: Cal. Civ. Code 3046 (lien for vendor of real property who has not taken mortgage or deed of trust to secure unpaid portion of purchase price of the real property sold); see Brown v. Johnson for a useful discussion of vendor's liens);  Cal. Civ. Code 3062 and 3063 (lien for service of stallion, jack or bull); Internal Rev. Code 6321 (federal tax lien). 

     Right of set off:   One statutory lien, the banker's lien, is sometimes confused with the right of set off.  Depository institutions, such as banks, credit unions, or savings and loan associations, may hold property of a customer, such as certificated securities, for safe keeping. If a customer is indebted to the depository institution and defaults on the indebtedness, the institution will be aided by state statutes such as the following that create a statutory lien in favor of the depository institution:  "A banker has a general lien, dependent on possession, upon all property in his or her hands belonging to a customer, for the balance due to the banker from the customer in the course of the business."

     More commonly, a depository institution will be aided by a common law right of set off, a concept distinct from but sometimes confused with a statutory "banker's lien." Depository institutions often encourage or require their borrowers to establish or maintain a checking or other deposit account with the institution as a condition to a loan. If the borrower who maintains such an account defaults, the depository institutiuon cannot exercise a banker's lien with respect to such an account because the balance in the account is not property of the customer in the hands of the depository institution. The depository institution has not segregated and held the borrower's deposits as property belonging to the customer; rather, it has credited the customer's account. In other words, the depository institution owes its customer the amount of money credited to the customer's account.

     While unable, therefore, to exercise a lien with respect to the account, the depository institution may nevertheless set off the amount, if any, credited to the borrower's account against the amount, if any, that the borrower owes the depository institution. For example, assume that you maintain a checking account with a bank and also have borrowed money from the bank. Assume that you default on the loan at a time when the loan balance is $10,000 and the balance credited to your checking account is $2,000. The bank may set off the amount it owes you ($2,000) against the amount that you owe it ($10,000), leaving a zero balance in your checking account and $8,000 owing on your loan.

     Under the common law of any individual state, parties other than depository institutions may also be entitled to exercise the right of set-off.    We do not further explore in these materials the common law variations on the right of set-off. 

     Consensual lien: A creditor that becomes secured by mutual agreement with another party has a consensual lien.  The Bankruptcy Code refers to this as a security interest, even though the phrase "security interest" is often associated only with a consensual lien on personal property and fixtures and not with a consensual lien on real property.  See Bankr. Code 101(51). Much of the law governing the creation, perfection, and enforcement of consensual liens is in statutory form (e.g. Article 9 of the Uniform Commercial Code), but this statutory regulation does not make the consensual lien a statutory lien. We devote most of these materials to consideration of consensual liens, beginning with some illustrative transactions in Commentary.Illustrative transactions. 

     Equitable lien: In some circumstances a court exercising its equitable powers may decree the existence of an equitable lien in the interests of fairness. The Bankruptcy Code does not define equitable lien. We discuss the concept in Commentary.Equitable liens.

     Liens, arising in any one of the ways described above, may attach to real property, personal property (including intangible personal property such as a right to payment from another, or intellectual property), and to fixtures. A consensual lien in personal property or fixtures is typically reflected in a written security agreement and a consensual lien in real property is typically reflected in a mortgage or deed of trust. Please take an preliminary look at our sample security agreement and sample deed of trust. We will make frequent reference to these documents and encourage you to study them more closely when those references are made.

     Most law schools and relevant teaching materials consider liens, and the bankruptcy treatment of liens, in several separate courses. In these materials we bring the topics together with the hope that the integration will deepen and enrich your thinking and understanding.