First-position lien priority is the foundation of secured private lending. As a first-position lender, you have first claim on the property in foreclosure — superior to all subordinate liens. Understanding lien priority mechanics is essential before deploying private capital.
What first-position means
In Illinois, lien priority is generally established by recording order — the first recorded lien has first priority, with later liens subordinated. As a first-position lender, your recorded mortgage is the senior lien on the property. In foreclosure, you're paid in full before any junior lien holders receive anything.
How to verify first position
Title commitment from a reputable title company. Title insurance lender's policy covering your loan amount. Both should explicitly show no prior liens. Pay attention to title exceptions — sometimes "first-position" loans carry quiet senior interests (judgments, tax liens, mechanics liens).
Liens that can leap-frog you
Property tax liens (always senior to mortgages), federal tax liens (sometimes senior depending on filing date and notice procedures), and certain Mechanics liens (Illinois has specific rules giving mechanics liens priority back to date of work). Title insurance helps protect against these, but doesn't prevent them — it provides financial protection.
Foreclosure mechanics for first-position lenders
In Illinois judicial foreclosure, the first-position lender files complaint, serves all junior lien holders and borrower, obtains judgment of foreclosure, and ultimately proceeds to sheriff's sale. Junior liens are extinguished at sheriff's sale (with some exceptions). The first-position lender recovers principal, accrued interest, and reasonable foreclosure costs from sale proceeds.
First-Position Private Lending Explained FAQ
First-position has senior lien priority; second-position is subordinated to first-position. In foreclosure, first-position is paid in full before second-position receives anything. Second-position lending earns higher yields but carries higher risk.
Property tax liens attach by operation of law and are statutorily senior regardless of recording date. This is true in most states including Illinois. As a first-position lender, watch property tax payment status — delinquent taxes can erode your security.
A lien filed by a contractor or material supplier for unpaid work on the property. Illinois has specific mechanics lien laws with priority dating back to date of work — meaning a contractor who started work before your mortgage was recorded may have a senior lien even if filed later.
No — title insurance covers what's shown on the title commitment. Title exceptions in the commitment are excluded. Read exceptions carefully. Lender's policy protects up to the loan amount; you're not protected for any excess.
You can either (a) pay it off as part of closing your loan (cash-out refi structure), (b) take second-position (with corresponding yield premium and risk), or (c) walk away.
A wraparound is a loan structure where you make a junior loan that "wraps" an existing senior loan. Borrower pays you; you pay the senior. Risky structure — borrower default leaves you obligated on the senior loan with no payments coming in. Not common in modern Chicago private lending.
Educational content only. Private lending involves capital-at-risk and tax/legal complexity. Consult a licensed attorney and CPA before deploying capital.