Trust Deed Investing · 2 min read
First vs. Second Position Trust Deeds
First vs second position trust deeds: lien priority, risk and return, combined LTV, and how investors confirm lien position.
This guide is part of our Trust Deed Investing hub.
Lien position decides who gets paid first if a property is sold or foreclosed. It is one of the most important factors in trust deed investing.
First position
A first position trust deed is the senior lien on the property, usually recorded first. In a foreclosure or sale, it is paid before junior liens, subject to items like property taxes. Because it is the safest position, it typically carries a lower return than junior positions.
Second position
A second position trust deed sits behind the first. It is paid only after the first lien is satisfied. If the property sells for less than the combined debt, the second lien may recover only part of its balance or nothing. To protect their position, second lien holders may need to keep the first loan current or pay it off.
Side by side
- Repayment priority: first is paid before second.
- Risk: second carries more risk of loss.
- Return: second typically pays a higher rate to compensate.
- Control in default: the first lien holder generally controls foreclosure timing.
- Key metric: for seconds, look at combined loan-to-value (CLTV) across both loans.
How to confirm lien position
- Review a preliminary title report before funding.
- Require a lender’s title insurance policy.
- Watch for subordination clauses that could move a lien behind new debt.
Which is right for you
First position suits investors focused on capital preservation. Second position may suit experienced investors who understand the added risk and can evaluate CLTV carefully. Review trust deed risks and how to evaluate a deal and talk to your advisors. This is general education, not investment advice.
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Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.