How to Structure a Loan with First-Lien Priority
When it comes to private and hard money lending, protecting investor capital is always the top priority. One of the most effective ways to do this is by ensuring first-lien priority on a loan. At VenusVenture.us, we view this as a non-negotiable safeguard that gives lenders security and borrowers clarity.
But what does first-lien priority really mean—and how do you structure it properly? Let’s break it down.
What Is First-Lien Priority?
A lien is a legal claim against a property that secures repayment of a debt. If a borrower defaults, the lienholder has the right to foreclose and recover their capital from the property sale.
- A first lien means the lender has the top repayment priority.
- Any junior liens (like second mortgages, mezzanine financing, or judgment liens) get paid only after the first lienholder is made whole.
For lenders, this is the foundation of protecting principal.
Steps to Structure a First-Lien Loan
1. Draft a Strong Promissory Note
This legally binding document outlines the loan terms:
- Principal amount
- Interest rate
- Repayment schedule
- Default provisions
It serves as the core agreement between borrower and lender.
2. Secure the Loan with a Mortgage or Deed of Trust
Depending on the state, the lender records a mortgage or deed of trust against the property. This filing in county records establishes lien priority and ensures enforceability.
3. Conduct a Title Search & Insurance
Before funding, always:
- Run a title search to confirm no prior liens exist.
- Require lender’s title insurance to protect against hidden claims or recording errors.
This step ensures that your lien is truly first in line.
4. Record the Lien Immediately
Timing matters. The lien must be recorded at or before closing to guarantee priority. Delays can leave room for other liens to jump ahead.
5. Use Escrows When Necessary
For construction or rehab projects, set up escrow accounts to release funds in stages. This adds control and ensures money is tied directly to property improvements.
6. Monitor Borrower Performance
Even with first-lien priority, staying engaged matters:
- Require periodic reporting
- Verify insurance coverage
- Track project milestones
A proactive approach prevents small issues from becoming defaults.
Why First-Lien Priority Matters
For lenders:
- Security – First in line for repayment.
- Lower Risk – Reduced chance of loss compared to junior debt.
- Predictability – Clear exit strategy in case of foreclosure.
For borrowers:
- Clarity – Transparent structure helps them attract financing.
- Credibility – First-lien loans are viewed as professional and reliable by future lenders.
Final Thoughts
First-lien priority isn’t just a technicality—it’s the foundation of responsible hard money lending. At VenusVenture.us, we structure all of our loans with first-lien protection, ensuring investor capital is shielded and borrowers operate with transparency.
In private lending, speed matters—but security matters more. That’s why first-lien structure is the cornerstone of every loan we make.
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