When a lender is in a first lien position, it means that they are in the first or priority position to benefit from any liquidation of the collateral which secures the loan, in the event that the loan is in default and the property is to be sold. An example of a first lien position would be the bank which holds the original mortgage on your property. The term primary lien holder refers to the lender who retains the first lien position.
A lien is a legal security interest in real or personal property, created and publicly recorded for and until the satisfaction of a debt or mortgage. The lien is an encumbrance on the property, and can prevent the transference of the property.
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In the event a loan is in default, and the collateral securing the loan is liquidated, the lender of record in the first lien position receives repayment of the lien amount, provided that the collateral secured the outstanding loan balance. If, after liquidation, funds remain, the subordinate lien holders (secondary, tertiary, etc.) will be repaid until such time as all of the funds are liquidated, or no additional liens remain unpaid.
Liens can be placed on personal property, such as cars, boats, planes, etc., as well as real property, including land, residences, commercial buildings, etc. A lien is considered invalid if it is not properly and publicly recorded in the jurisdiction in which the property lays.
The vast majority of lenders will provide loan financing on a collateralized loan only if they will have the first lien position; to determine any existing liens against a property, a lender will request a title search against the property.
