What is a lien guarantee?

A lien is a legal claim to assets used to secure the repayment of a debt or loan. This motivates the borrower to meet the obligations of a loan, while providing the lender with a path to recoup their money if the borrower fails to repay the debt.

How does second lien debt work in real estate?

BREAKING DOWN ‘Second Lien Debt’. For example, in a real estate loan where a borrower in default also has a second mortgage, creditors can foreclose and sell the home, followed by full payment on the balance of the first mortgage and the distribution of any remaining proceeds to the lender on the second mortgage.

Can a judgment lien be placed on a second mortgage?

Second mortgages are usually recorded next and are therefore in second position. Judgment liens, if there are any, are often junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens previously filed by other creditors. (Learn more about when a creditor is allowed to place a lien on your property .)

How is the subordination of a second lien effected?

In a second lien financing, the lien subordination is effected contractually by means of an intercreditor agreement between the first lien and the second lien creditors or their representatives. Although the first lien creditors will often also insist on timing the filing of

What happens if you default on a second mortgage?

For example, if a borrower is in default of a real estate loan with a second mortgage, creditors may foreclose and sell the home. Following the full payment on the balance of the first mortgage, the distribution of any remaining proceeds goes to the lender on the second mortgage.

Can a second mortgage be a judgment lien?

Often, homeowners have more than one mortgage on their property, as well as judgment liens in some cases. For instance, suppose you took out a second mortgage—along with a first mortgage—to cover the purchase price of your home. Then, a credit card company sued you and got a judgment lien.

Why are second liens more risky than senior loans?

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