A first-lien note is secured by a claim on a property that ranks ahead of every other loan against it. If the property is sold or foreclosed, the first-lien holder is paid before any other lender, which is why buyers prefer this position and pay more for it.
How a seller-financed note ends up first
When you sold with seller financing, your buyer signed a note, the promise to pay, and a mortgage or deed of trust. That second document created your lien, the claim on the property that secures the debt. If the property was free and clear at the sale and your buyer borrowed from nobody else, your recorded lien is the only one, and the only one is first.
You would hold a second lien if your buyer took a bank loan for the larger share of the price and you financed the rest, or if a mortgage of your own was left in place on the property when you sold.
What “first” means when there is more than one lien
Lien position, also called priority, is the order in which claims are paid out of the property’s value. The first is paid in full before the second receives anything, the second before the third, and so on down the line.
In general, the order follows the dates the liens were recorded in the county land records, earliest first. That is the practical side of what recording a mortgage means: one that was signed but never recorded may lose its place to a later lien that was.
Some claims can move ahead regardless of date:
- Property taxes. Unpaid property taxes generally come ahead of every mortgage, whenever they arose.
- Other liens created by statute. Depending on the state, certain association dues or municipal charges can also take priority.
- Subordination. A lien holder can agree in writing to step behind another lender. If you ever signed a subordination agreement, your lien may no longer be first.
These rules differ from state to state, and a title company or a real estate attorney can confirm where your lien sits.
Why buyers pay more for first position
A note buyer prices from the return they need for the risk, and first position takes risk away. All of the equity protects the note. Equity is the property’s value above the debt against it, and for a first lien nothing stands between the note and that value except taxes. The holder also controls the outcome: if the payer defaults, the first-lien holder decides whether to foreclose, with no lender ahead of them whose foreclosure could cut the lien off.
Less risk lets the buyer accept a lower return, which leaves a higher price for you. That is the main link between lien position and note value. First position also widens the field, since some buyers bid on first liens only, and it makes a partial purchase, where you sell only some of the payments, easier to arrange.
First lien does not mean full price
Position is one of the features that define a note, and one input among several in its price. A first-lien note still sells for less than the balance owed. As an example of the arithmetic only, a $90,000 balance sold for $81,000 is a $9,000 discount, 10% of the balance. The interest rate, the remaining term, the payment record, the payer’s credit and the equity all move the real figure, and a first lien on a property with almost no equity can price worse than you expect. So the honest answer to whether a first-lien note is worth more is yes, with everything else held equal.
How to confirm yours is first
- Find your recorded mortgage or deed of trust. It should carry a recording stamp with a date and a document number.
- Ask whether your buyer took out any other loan at purchase, and whether you ever signed anything agreeing to rank behind another lender.
- Check that property taxes are paid up.
There is no need to order a title search before you request pricing on the note. A note buyer runs one as part of their checks before funding, and it shows every lien on the property in order.
If the search shows you are second
A note in second position can still be sold, though second-lien notes go to a smaller group of buyers who price mainly on the equity left after the loan ahead. Before you accept that yours is one, look at what the search found. A loan that was paid off but never formally released can still appear on the record, and a title company can tell you whether the lien ahead of yours is live and how an old one gets cleared.
Related questions
Is a first mortgage the same as a first lien?
In everyday use, yes. A first mortgage is a mortgage that holds first-lien position. The same position can be held through a deed of trust, the document some states use in place of a mortgage.
Can my first lien lose its position?
It can. Unpaid property taxes generally rank ahead of it, and you can give up priority by signing a subordination agreement. A lien that was never recorded is also at risk. A title search shows where yours stands.
Do I need a title search before I ask for a quote?
No. A quote can be based on what you tell us. The buyer orders a title search during their checks before funding, and it confirms the lien position at that point.