The lien position determines who gets paid first when a property is sold or foreclosed — making it one of the most critical risk factors in any note investment.

• A first-position lien has the legal right to repayment before any other liens or claims.
• Second or junior liens only recover funds after the first lienholder is fully satisfied.
• In distressed or low-equity scenarios, lien position can mean the difference between full recovery and total loss.
• Understanding lien hierarchy is essential for evaluating both risk and return potential.

The Strength of First-Position Notes

First-position notes are often preferred by private equity firms because they combine asset-backed security with superior recovery priority.

• Offer the highest likelihood of principal protection and repayment.
• Provide control in default or foreclosure proceedings.
• Enhance exit options — from performing sales to REO takeovers.
• Deliver stronger collateral coverage and more predictable risk-adjusted returns.

Investment Implications

Prioritizing first-lien positions helps safeguard investor capital while maintaining flexibility across acquisition and disposition strategies.

• Reduces exposure to subordinate debt write-offs.
• Supports tighter underwriting and disciplined risk management.
• Aligns with institutional-grade asset protection standards.
• Reinforces portfolio stability and investor confidence.