Lien Priority: What real estate Investors must know to profit big when buying houses!
Hey, this is Mike with My Real Estate Dojo and today’s lesson is about lien priorities. If you guys don’t know what a lien is, go back and refer to my previous video.
In this video we are going to be talking about lien priority. i want to quickly run your though, a lien priority is determined by the date of the recording in the public record. What that mean is that whoever runs to the county clerks office and files the lien first is first in line.
Excuse me, first in line. Why do you want to be first in line, because if you have a second or a third lien, the person that’s first in line, could foreclose and wipeout the second or the first lien.
Let’s say, the first lien is worth $10 000 and then the second lien is worth $10 000, the first lien can foreclose on the property and wipeout the second lien’s positioning, which is a very powerful tool, especially if you want to use it to negotiate. For example, what I have done and what would be a good way to do this, is to negotiate with the banks, when they have a second mortgage.
Let’s say the first mortgage is with the Bank of America for 100 000, a let’s say the second mortgage is 20% debt, used to be their 20% down payment, let’s say at Chase. What I will do, the customer is behind on their first mortgage with bank of America, let’s 3-4 months.
Now the bank has a good chance to foreclose, so then I’ll start negotiating with the second mortgage in this case- it’s Chase. What I will do is wipe that $20 000 of payment at 10 cents, 20 cents, 30 cents on the dollar. Why would Chase want to do that? Because they understand that when bank of America forecloses on them, their positioning lien second will get wiped out and they will get zero dollars.
So then again, second lien is going to get zero dollars, unless they bid and they buy the property, ok? So that’s why it’s crucial to be a clever investor, like Mr. Investor, and know the ins and outs.
If you understand lien priority and this is a second lien and third lien, you can easily go in there and negotiate, because first lien is behind, they will foreclose and the second and third lien will get zero, unless at the auction the house sold so much more than the first lien holders amount.
Proceedings will go to the second and third lien holders. There is one exception to the rule- whoever runs to the county clerks office is going to be first in line. Government, tax liens, they always take first priority and also, remember this, government and tax liens do not get wiped out in foreclosure. Second liens and third liens, search liens, like for the subcontractors, suppliers, things of that nature.
The way that one works is that their lien is going to be based on the day they start the project, not when they went and fell for it. Not, for example, it was ground up and they started in January and then, you know, they were done with it later, so the lien, the start time, the days they started the project.
That’s another thing to consider. When you’re buying a house that somebody already lived in, they’ve got title policy and you don’t really have to worry about that. It’s good to know the difference between construction lien and repair lien.
Construction lien priority starts when the workers start on the project say, where repair leans, they didn’t build a home, the construction, they just repaired the floors or something like that.
That type of lien, the mechanical repair lien, their date starts the day that they finish the job, actually. The day they finish the job, realize that they are not going to get paid, then they go the county clerks office, then they are going to get an updated like construction lien or purchase money mortgage. Alright guys, we just talked about lien and lien priority.
I hope this kind of cleans up the water for you, so you can be a bit more sophisticated investors, so when you see a lien, you don’t just panic and say this is not a good deal.
You can actually act on it and see if you can make some money out of it. Alright gang, go out there and hustle and bustle and if you like these videos, please share, please comment and please support me by buying some of my digital products: flyers, contacts, memorandums, you know, join the DOJO.
The membership is $500 a year with one on one mentoring. You get to chat once a month. I'll definitely add great value to you guys if you go out there and do more deals. It’s guaranteed. This is Mike with My Real Estate DOJO. Have a great day! Talk to you soon!