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Home loan check: What is a junior lien?

[Dec 26, 2010.]


What is a lien?

It is possible to have more than one mortgage loan on a property. Mortgage loans are secured against a property by a lien. A lien is the legal claim of a person, or entity (such as a bank), upon the property of another person - for the purpose of securing the payment of a debt or obligation.

In the case when there is more than one mortgage loan secured by a lien against a property, each lien will have a different priority. If the property owner stops paying the obligation, the person or entity who lent the money, secured by the lien, may have the right to foreclose. Once the property has been foreclosed upon, and sold for payment of the debts, the liens are paid in order of priority.

 What is a junior lien?

The lien given this highest priority, is the first lien, usually called a first mortgage. All liens other than the first mortgage are considered junior liens. Because junior liens are less likely to be re-paid, in full, in the event of foreclosure, they are a higher risk to the lender than a first mortgage.

Second liens, such as home equity loans and home equity lines of credit (HELOCs), are junior liens. They are, therefore, a higher risk loan than a first mortgage. The lender is less likely to be re-paid, in full, in the even of a foreclosure.

Get free, fast information about home equity loans, now.

What are the foreclosure rights of a junior lien?

Foreclosure rights are different by state. Check with your specific state for more information. Generally speaking, a junior lien holder has the right to foreclose either judicially, or non-judicially. A lender foreclosing using judicial proceedings must claim title to the defaulted property using a lawsuit. The court awards the title to the lender, and the home is then auctioned for sale by the local sheriff. A lender foreclosing using non-judicial proceedings does not have to file a lawsuit. Instead, a notice of default is filed, and prescribed time-lines and rules are followed. At the end of the process, the lender is able to sell.

Junior lien holders will always have to defer to the lender in first position when it comes to getting re-paid and rights to foreclosure. If the home owner is current on the first mortgage, but defaults on the junior lien, the junior lien holder would need to communicate, and negotiate, with the first lien holder to exercise any rights. A first lien holder who is being paid timely, may be unwilling to to assist the junior lien holder.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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