What is a 1st lien?

A First Lien Home Equity Loan (First Lien) is a mortgage product, meaning it’s a loan secured with real estate as collateral. However, First Liens are generally taken out when you’ve already purchased a home with a traditional mortgage.

Who is the lien holder on the property?

The borrower obtains the loan, but the lender (as the lien holder) retains a lien on the property, which means that they have certain rights in the event of a sale of the property or if the borrower defaults on their mortgage payments.

What happens to the second lien on a secured loan?

If a borrower defaults on a secured loan, the senior lien holder may receive 100% of the loan balance from the sale of underlying assets. However, the second-lien holder may receive only a fraction of the outstanding loan amount.

Which is an example of a junior lien holder?

A junior lien holder is a person or entity who obtains a lien interest after there is already an existing lien on the property. The most common example of this is with mortgages.

Why are secondary liens more risky than senior liens?

Due to the subordinated call on pledged collateral, secondary liens carry more risk for lenders and investors than does senior debt. As a result of this elevated risk, these loans usually have higher borrowing rates and follow more stringent processes for approval.

The borrower obtains the loan, but the lender (as the lien holder) retains a lien on the property, which means that they have certain rights in the event of a sale of the property or if the borrower defaults on their mortgage payments.

If a borrower defaults on a secured loan, the senior lien holder may receive 100% of the loan balance from the sale of underlying assets. However, the second-lien holder may receive only a fraction of the outstanding loan amount.

Who is the junior lien holder on a mortgage?

This second mortgage lender might be called the junior lien holder, while the initial mortgagor would be called the senior lien holder. This can happen with other subsequent mortgagors in the event of multiple refinancing events, with each lien holder being considered as a “junior” to the previous lien holder.

When does the senior lien holder get paid first?

When the property is sold, the senior lien holder (the first mortgagor) gets paid first. The next junior lien holder in line gets paid next, and then the next junior lien holder, and so on. For example, Betty owned a house and had a $200,000 mortgage with Bank ABC.