What Does it Mean to Perfect the Lien Only Mortgage?

The mortgage business sometimes seems to have its own language -- lien theory, title theory, perfecting a lien. Usually the meaning is simpler than it sounds, Perfecting a mortgage, for instance, means your lender must take legal steps to secure her claim to your property. It's important for the lender to do this promptly so her claim will be settled first if you default on your obligations.

Mortgage Theory

Your home loan combines two things: the promissory note for the debt and the mortgage or trust deed that gives your lender a claim on your property. Different states treat this claim differently. In title theory states, the mortgage has a clause that gives property title to the lender until you pay off your loan. In lien theory states, you have title, and the mortgage only creates a lien, which is a right to seize the property if you default.


The differences between lien theory and title theory are more than technical. If you default on a lien-only mortgage, your lender has to go to court and file a lawsuit to foreclose. In some states, the judicial process can take more than a year. If the lender retains title, he can use non-judicial foreclosure and possibly take the property in as little as a few of months.


To perfect a lien on your house, your lender must record the mortgage lien with the county in which your property is located. Any lienholder, such as an unpaid subcontractor or someone trying to collect on a debt, must do the same. This is important because in foreclosure, liens are usually paid off in the order of seniority: The lender with the oldest perfected lien is entitled to all her money before any other creditor receives payment.


One of the reasons it's difficult to sell a house with a lien on it -- for unpaid income taxes or a judgment lien for a debt, for instance -- is that the buyer's new mortgage will be junior to the lien. Lenders perfect the mortgage lien so they will be senior lienholder, and most lenders won't write a mortgage until you've dealt with the senior lien. Property tax liens are an exception to the rules. They automatically take precedence, no matter when your mortgage lender perfected his lien.