Second Lien Debt: How Does It Work?

A second lien debt provides a creditor with a method of collection on a piece of property--typically, real estate. The lien grants the lender or creditor the right to hold an individual’s personal property as collateral for payment of a debt.

Rights of the Second Lien Holder

A second lien holder, like a primary lien holder, may seize and sell the debtor’s property should he fail to pay off the lien in a timely manner. A second lien can be placed on a piece of property voluntarily, such as through a second mortgage, or involuntarily. Tax liens and judgment liens are both examples of involuntary liens.

Lien Priority

All liens on a given piece of property are assigned a lien priority. In most circumstances, a lien holder’s priority is determined by the date the lien was filed. Thus, any lien holder that chooses to call due its lien and seize the individual’s property must respect the lien priority order. If the value of the property is in question, it isn’t in the best financial interest of a second lien holder to seize the collateral. This is because the lien priority could result in the lien holder going through the proper legal channels for seizure only to be forced to turn any money recovered over to the primary lien holder.

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