Investor's wiki

Prior Lien

Prior Lien

What Is a Prior Lien?

A prior lien is a lien that is recorded prior to some other claims. If the pledged collateral against the loan must be liquidated, prior liens must be paid before some other claims.

A lien is a legal right conceded by the owner of the property, either by law or generally acquired by a creditor. A lien effectively guarantees an underlying obligation, like the repayment of a loan. On the off chance that the underlying obligation isn't fulfilled, the creditor might have the option to seize the asset that is the subject of the lien.

Grasping a Prior Lien

A prior lien is a first lien on a specific piece of collateral. Collateral alludes to a property or other asset that a borrower offers to secure a loan from a lender. On the off chance that the borrower stops making the guaranteed loan payments, the lender can hold onto the collateral to recover its losses. Since collateral offers a security to the lender should the borrower fail to pay back the loan, loans that are secured by collateral commonly have lower interest rates than unsecured loans. A lender's claim to a borrower's collateral is called a lien; hence, a prior lien is the primary loan taken out on the piece of collateral.

The type of collateral for a loan might be foreordained in light of the loan type, for example, with a mortgage or a vehicle loan. The type of collateral may likewise be flexible, for example, with a collateralized personal loan. For a loan to be viewed as secure, the value of the collateral must meet or surpass the amount staying on the loan.

On account of a mortgage, the collateral is the house purchased with the funds from the mortgage, and that mortgage comprises a prior lien. On the off chance that payments on the debt cease, the lender can claim the house through a cycle called foreclosure. When the property is in the lender's possession, the lender can sell the property to get back the excess principal on the prior loan. The most common form of a prior lien is a first mortgage, or primary mortgage. At the point when an individual needs to buy a property, they might choose to finance the purchase with a loan from a lending institution. The lender will have a lien on the property, since the loan is secured by the home.

A homeowner could take out another mortgage, like a subsequent mortgage, while as yet paying off the original and first mortgage. The subsequent mortgage is money borrowed against the home's equity to fund different tasks and expenditures. Nonetheless, the subsequent mortgage — and some other subsequent mortgages taken out on a similar property — is subordinate to the principal mortgage, and the primary mortgage is a prior lien to the subsequent mortgage.

Features

  • A prior lien is a lien that is recorded prior to some other claims.
  • Assuming the borrower stops making the guaranteed loan payments, the lender can hold onto the collateral to recover its losses.
  • The most common form of a prior lien is a first mortgage or primary mortgage.
  • A lien is a legal right conceded by the owner of the property; it guarantees an underlying obligation, like the repayment of a loan.