Final answer:
A lien is sometimes necessary for lenders as it provides them with collateral and a legal right to seize and sell the borrower's property or assets if the loan is not repaid. This ensures that lenders can recover their money in case of default.
Step-by-step explanation:
In the financial capital market, lenders may require a lien as a form of collateral when making a loan. A lien gives the lender a legal right to seize and sell the borrower's property or assets if the loan is not repaid. It provides lenders with added security and reassurance that they can recover their money in case of default.
For example, if someone wants to buy a house and needs a mortgage loan, the lender may place a lien on the property. This means that if the borrower fails to make the mortgage payments, the lender can foreclose on the property and sell it to recover the amount owed.
A similar concept is used in the crop lien system, which was common in the South. In this system, farmers would use their future crops as collateral for loans. If they couldn't repay the loan, the lender had the right to claim the crops as payment.