Junior Lien Definition

• Simply put, a lien is considered to be "junior" when it is recorded after a previous lien. The amount of the lien itself has no bearing on the position. If your first mortgage is $50,000 and was recorded in 1995, while your second mortgage is $250,000 recorded in 2010, the $50,000 mortgage takes priority. There can be multiple junior liens on a property. The lien type is not just limited to a mortgage. Tax liens, Internal Revenue Service liens and judgments all can be considered junior liens if not in first position.
  
  

Why a Junior Lien Would Foreclose First

• A junior lien holder can initiate foreclosure proceedings at any time. Even if your first lien is current, the junior lien holder can still go after your collateral in the event of nonpayment. This isn't always the easiest course of action, as the junior lien holder must satisfy all senior liens to take the collateral. If the junior lien is $250,000, while the senior lien is $50,000, the opening bid at auction will be $300,000. The junior lien holder will collect the $250,000 and pay the remainder to the senior lien holder.
  
  

Junior Tax Liens

• Tax liens take precedence no matter how many senior liens are in place ahead of them. The IRS possesses redemption rights. This means the agency can redeem the property, even if foreclosed upon, to use the equity to satisfy the lien. It has 120 days to execute the redemption. State taxes are always considered first priority, regardless of whether the lien is in first position or fifth. Even if a first lien holder with a $200,000 balance forecloses, if the house has a lien of $3,000 in unpaid state property taxes, the opening bid for the property will be $203,000. The first lien holder will satisfy the state before claiming its share.
  
  

Deficiency Judgment

• A junior lien holder must satisfy any senior liens during foreclosure. This is not the case when a senior lien holder forecloses. The senior lien holder seizes the collateral and satisfies its own obligation with no concern for the lien positions behind it. This does not mean that the junior lien holders have no recourse. A junior lien holder can seek a deficiency judgment against the borrower. Even though the collateral is gone, the borrower is still responsible for satisfying the obligation as mandated by the courts.