When you purchase a home and receive a loan to do so, your lender puts a lien on the property so that it becomes collateral in case you’re unable to repay it. This gives the lender power to force the sale of your home if you fall behind financially. Oftentimes, there’s more than one loan on a single real estate deal. Each loan includes a different lien or repayment priority. Here are two common ones.
What are Senior Liens?
Considered your first and primary mortgage on your home, a senior lien is valued at the original loan amount and is secured by the property’s value. You can only satisfy a senior lien by selling the property or paying for it in full. Death doesn’t wipe it clean, and inheritance doesn’t void it. Following a foreclosure, the senior lien will be the first you’ll have to pay back (only comes second to tax liens). That means you’ll have to repay your first mortgage lender before anyone else.
What are Junior Liens?
Junior liens, on the other hand, are held by second mortgage lenders and creditors who have received a judgment to collect monies from you. When you sell your property during a foreclosure sale, your senior lien is the priority. In many cases, you won’t be able to repay your junior liens because the senior one accounts for all the funds. Contrary to popular belief, this doesn’t free you from your financial obligation to repay the junior liens. Mortgage lenders and creditors can sue you, even after your property has already been foreclosed.
For more information about senior and junior liens, talk with an experienced real estate attorney who can help you figure out your finances during foreclosure.