A mortgage is a loan secured by real property. Understanding how mortgages and liens work is essential for property owners and buyers.
How Mortgages Work
When you take out a mortgage:
You sign a promissory note (promising to repay the loan)
You sign a mortgage (or deed of trust), giving the lender a security interest in the property
If you fail to make payments, the lender can foreclose — sell the property to recover the debt
Types of Mortgages
Fixed-rate mortgage — the interest rate remains constant for the life of the loan (typically 15 or 30 years)
Adjustable-rate mortgage (ARM) — the rate adjusts periodically based on a market index
FHA loan — insured by the Federal Housing Administration; lower down payment requirements
VA loan — guaranteed by the Department of Veterans Affairs; available to eligible veterans with no down payment
Conventional loan — not backed by a government agency; typically requires at least 3–20% down
The Foreclosure Process
If a borrower defaults, the lender may foreclose. The process varies by state:
Judicial foreclosure — the lender files a lawsuit; the court oversees the sale
Non-judicial foreclosure — permitted in states with deeds of trust; follows a statutory process without court involvement
Borrowers typically have the right to cure the default before the sale and, in some states, a redemption period after the sale to reclaim the property by paying the full debt.
Types of Liens
A lien is a legal claim against property to secure payment of a debt. Common liens include:
Mortgage lien — secures the home loan
Tax lien — imposed by the government for unpaid taxes (property, income, or other)
Mechanic's lien — filed by contractors or suppliers who performed work or provided materials but were not paid
Judgment lien — resulting from a court judgment against the property owner
HOA lien — for unpaid homeowners' association dues
Lien Priority
Generally, liens are prioritized by the date of recording — "first in time, first in right." However, property tax liens and certain other government liens take priority over all others. Understanding lien priority is critical in foreclosure, as proceeds from the sale are distributed in order of priority.