How Does A Lender Perfect A Lien?

by Richard Fonfrias,

J.D. Chicago’s Financial Rescue &

Bankruptcy Lawyer

Fonfrias Law Group, LLC

First, what does it mean to “perfect a lien”?

Perfecting a lien is a legal procedure that give a lender’s lien priority over other creditors and gives it the legal right to foreclose if you fail to make your payments.

The documents that are involved in a mortgage loan transaction when you buy a home are a promissory note and a mortgage or deed of trust.

The promissory note is what you sign saying that you will repay the money you borrow to buy the home. In addition, the mortgage is the document that pledges the property as security for the debt and creates a lien on the real estate. (For purposes of this article, the word mortgage includes a deed of trust.) Your home is the collateral for the mortgage loan. If you don’t make your payments, the lender will foreclose on your home.

However, to protect its position against other property liens and to establish the right to foreclose, the lender has to take steps to “perfect” the property lien. This means the lender must record the lien in the county where the real estate is located, for two reasons:

1. This gives potential purchasers and other lenders notice that this lender has a lien on the property, and
2.  After this lender perfects its lien by recording the mortgage, his lien has priority.

The lien with the highest priority gets paid first in foreclosure.  The legal rule known as “first in time, first in right” generally means whichever lien is recorded first gets paid first in foreclosure.  However, this does not always hold true, depending on state law, because some types of liens have priority over other types of liens.