What Does it Mean to Perfect a Lien?

Bottom of Form

If a lien is “perfected” it means that the mortgage lender (i.e., creditor) has established its priority (1^st, 2^nd position, etc.) on the encumbered property versus other creditors. Perfection is generally accomplished by recording the mortgage or deed of trust in the county records which are the steps the law requires to give other lenders and creditors notice about the lien.

When buying residential real estate, you have to primarily sign two documents.  First is a promissory note and second is a mortgage or deed of trust.  The promissory note contains your promise to repay the money you borrowed and spells out the terms and interest rates, etc. Depending on where you live, you will also sign either a mortgage or a deed of trust. The mortgage/deed of trust is the document that pledges the parcel of property as security for the debt and creates a lien on the property. The lender takes steps to perfect the lien which gives the lender the right to foreclose and protect its position against other property liens such as other mortgages, judgment liens, state tax liens, etc. 

How Does a Lender Perfect its Lien?

To perfect its lien, the lender must record or file the mortgage with the appropriate legal authority. Usually, the mortgage is recorded in the land records in the county where the property is located.  The purpose behind the recording requirement is to show on public records that the lender has a lien against the property.  Recording the document gives other parties, such as potential purchasers and other lenders, notice of the lien.  Once a lender perfects its lien by recording the mortgage, it establishes the lien’s priority.

Lien Priority Explained

Lien priority determines the order in which creditors get paid in a foreclosure. If a lien has priority over another lien, it gets paid before the other lien. Liens generally have priority in the order that they are recorded in the land records office.  This rule is called first in time first in right.  But as with most legal rules, some exceptions to the “first in time, first in right rule are in place. Depending on state law, certain liens such as property tax liens, mechanic’s liens, and HOA and condominium association assessment liens get priority over previously recorded liens.  It can become quite complicated and therefore always smart to talk to a real estate attorney to learn more about liens, lien priority, title searches, etc.