Definition
A primary lien is an ownership stake in property that is more important than any other ownership stakes that may exist for that property.
Analysis
A primary lien is a claim on property that must be repaid first in the event that the property is sold. Any secondary liens may be repaid only after the primary lienholder has been repaid in full.
A mortgage loan is a common example of a situation in which the lender would maintain a lien on the property until the loan was repaid. Any subsequent efforts to cash out equity, such as through a home equity line of credit would be secondary liens. A second mortgage would also be subject to a secondary lien.
In the event that a borrower defaults, the primary lienholder may claim the property and auction it off to the highest bidder to repay the loan. Any remaining funds would then go to secondary lienholders. For real estate held as collateral, the primary lienholder must follow a strict procedure known as foreclosure before the claimed property may be seized.
