Sometimes being in second place can be more powerful than being first! Let’s look at a couple of ways a second position lien can become a first position lien, or at least how a senior lien gets knocked out of first position. A few months ago, I made a post on social media about the benefits and power of being in first position when it comes to a mortgage lien. While typically, being in first position is the best place to be, sometimes other liens can take precedence over the first lien.
I’m sure you can guess and already know that the first thing would be…taxes. Property tax liens have priority even over the original first mortgage lien holder. This is just one of the very important reasons why we check for tax liens during the due diligence phase of acquiring mortgage notes. Taxes are probably the most common way, but there are a few other ways a first position can lose its spot.
Typically, the lien priority is based who has recorded their lien first. That determines which
lien takes precedence in receiving payment. Another way a first position lien can lose its spot, is if the first lien was paid off and there was a second lien on the property like a Home Equity Line Of Credit (HELOC) or second loan.
If the second lienholder did not agree to subordinate (remain in second position), then they move to first position. This becomes more important in the event of a default, refinance or foreclosure. This is a very powerful thing for the second position lien holder, especially if there is significant equity in the property to cover the lien.
Take a second look at second position liens, you may be first place!