2nd lien lending

There are so many options in the lending world, especially when we are lending to real estate investors.

One of the highest demanded loan options is lending on a property in 2nd lien position.

First off let’s clarify what I mean by a lien.  When you lend money with real estate as collateral you create a mortgage and or deed of trust.

When the mortgage or deed is recorded with the county it creates a lien against the property.  The lien gives the lender protection in case the borrower stops paying the loan as agreed (and other ways that put the loan in default).

What does lending in 2nd position mean.

All recorded deeds or mortgages (depends on the state the property is in if its a deed or mortgage) create a lien on the property.

Lien position is the priority of the liens on the property.  In other words who has first rights to the property if a loan defaults.

It is not the size of the loan but who has recorded the deed/mortgage first.  First come gets lien position number one.

All other recorded

Why lend in 2nd position.

The number one reason is the amount needed for a 2nd lien position loan is normally smaller.  The truth is there are more private lenders who have $25k vs $250k.

The second most popular reason is baby steps, it is easier to start lending with a smaller amount at risk.

Typically you will receive a higher note rate and possible fees…most 2nd mortgages

Why there is a demand for 2nd liens.

What are the added risks.

you do not have first rights to the property

if the borrower defaults on the the 1st mortgage you may have to pay them off to

Must do’s on 2nds

Title

Get cross

Get PG