senior lien

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Senior lien refers to security interests in an investment that get repaid before other liens. Typically, senior liens are the first liens issued with debt on an investment. Later investors also have a lien on the property, but if the debtor becomes insolvent, the liens by the later investors can only receive payment after the senior liens become paid. There can be multiple senior liens, and there can be multiple tiers of liens, meaning that one lien may be “more” senior than another but not the most senior lien. 

The first lien issued for an investment may not automatically be treated as a senior lien. Bankruptcy laws may automatically treat first liens as senior or may require specific contractual clauses to be negotiated stating that a lien ranks senior to later liens on the property. Virtually all liens contain these clauses and often add a requirement that the debtor receive approval before giving other investors liens on the property. Bankruptcy laws typically uphold these clauses. However, the lenders often must register their liens with the relevant government agency, or else, later lenders would not be aware of the senior lien and courts may rank all the lenders equally. 

[Last updated in May of 2022 by the Wex Definitions Team]