What is a lien

Lien

According to Section 1204 of the German Civil Code (BGB), this involves securing outstanding claims. In the case of a lien, the debtor deposits a pledge that can be retained by the obligee if the agreed payments are not made (e.g. due to personal bankruptcy). The satisfaction of the claims is guaranteed by the urgent right to a third-party object (immovable or movable is irrelevant here). The lien remains in place for the period of the claim and expires as soon as it has been paid.

1. Types of lien

As a rule, a distinction must be made between these two types: the contractual and the statutory lien.

Contractual lien

As the name suggests, claims arise within the framework of a contract. A security for the loan taken out is deposited in this in a corresponding clause. In practice nowadays the general terms and conditions lien comes into force automatically. As part of the agreement, it is clarified that the obligee receives part of the legal claim to the object pledged by the debtor. This should not only secure the existing claims on both sides. At the same time, the contractual lien increases legal security, especially with individual agreements.

Statutory Lien

No contractual agreements are necessary here because the legislature has already defined all rights and obligations. There are two types of statutory lien:

  • Statutory lien: The property is owned by the obligee. This is the case, for example, with factory companies or commission agents.
  • Possessed legal lien: The pledged goods remain in the debtor's possession. This affects landlords and landlords, among other things.

2. Appointment of the lien

Pledging of movable property

Regardless of the order of the lien, creditors and debtors must always agree on the type of lien on movable property.

  • Pledged item in the possession of the pledger: The debtor remains the direct owner of the item or thing, but must hand over the pledged goods to the obligee. This becomes an indirect owner.
  • Pledged item in the possession of the pledgee: A handover is no longer necessary. The right of possession remains in the possession of the pledger just as directly or indirectly as a pledged item.
  • Pledged item still in the possession of the pledger: In contrast to the options mentioned above, nothing is transferred here. Instead, joint ownership is expressed through joint lock. As a result, it is not possible for either party to sell the pledged item without the consent of the other.
  • Pledged item in the possession of a third party: This variant requires a declaration of assignment, which is issued by the debtor to the obligee for the purpose of surrender claim.

Pledging of claims and rights

  • Pledging of receivables: As with the pledging of movable property, it is necessary to agree on the creation of the lien. In addition, the pledger must notify his debtor of the pledge of the claim by means of a pledge notification.
  • Pledging of securities The pledgee and pledger must also agree on the creation of the lien. Is it with the securities Bearer papers, the papers must be handed over. It is about Order papers, these are also handed over, but they must also be (blank) endorsed. When pledging Recta papers the lien arises on the right that is set out in the security. This includes the right of the pledgee to hand over the paper. In addition, the right of lien must be communicated to the third party debtor by means of a pledge notification.

3. Realization of the lien

In order to be able to realize the lien, the lien must have been reached. This is the case when the claim is due in whole or in part. If the creditor's claim is not a monetary claim, the lien does not apply until the claim has been converted into a monetary claim. In addition, the pledgee must have threatened the realization of the pledge in order to actually realize the lien. The exploitation may take place at the earliest one month in the case of private individuals and one week after the threat at the earliest in the case of business people.

The lien is at movable property exploited through a public auction carried out by a bailiff, notary or publicly appointed auctioneer. The auction location is to be made public. Both the pledgee and the pledger have the right to bid. Since the pledger has the opportunity to bid, he can try to keep his loss as low as possible and increase the proceeds from the sale through his own bids. However, he does not have this option if the exploitation takes place through a so-called private sale. For this purpose, a publicly authorized broker is appointed who sells the goods at the current price. However, the prerequisite for a private sale is that the goods have a stock exchange or market price. In the case of liens from claims, the third-party debtor is only able to settle his debt after the lien maturity by paying the pledgee. If the claims are to be pledged, this must be communicated to the third party debtor by means of a pledge notification. Liens on securities are realized through private sale.

The right of lien expires when the pledged item is realized. The lien also expires if the underlying claim no longer exists, the pledged item has been returned to the owner, or if the obligee waives it. The pledger or owner must be notified of the obligee's waiver.