First lien
A first lien is the senior claim on a property: the mortgage or deed of trust that is paid first from a sale or foreclosure, before any second or later liens. Most private lending capital is available only for first-lien loans.
How a first lien works
A lien gives a creditor a claim on property until a debt is paid. When a property has several mortgages, priority decides who is paid first. Under the general rule, priority follows the order in which mortgages are recorded, although subordination agreements, purchase-money rules and some tax and statutory liens can change it.
The first-lien holder is paid in full from foreclosure or sale proceeds before a second-lien holder receives anything. A foreclosure by the first lienholder can also wipe out junior liens, while a junior lender that forecloses takes the property subject to the first lien.
Lenders confirm their position with a title search and a lender’s title insurance policy that insures the lien’s priority.
Why it matters to a private lender
Most capital partners, loan buyers and warehouse lines finance first-lien loans only, because the first position carries the least risk of loss. A second lien depends on the property being worth more than the first loan plus foreclosure costs, and the second lender may have to pay off or keep current the first loan to protect itself.
Example
Hypothetical. A property sells at foreclosure for $500,000 with a $350,000 first lien and a $150,000 second. After $40,000 of costs, the first lien is paid in full and the second receives $110,000.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.