second lien: meaning, definition, pronunciation and examples

A second mortgage on a house is a common type of second lien, specifically using real estate as collateral. However, 'second lien' is a broader term that can apply to loans secured by other assets like equipment, inventory, or intellectual property.

It allows a borrower to access additional capital when the primary assets are already pledged to a first lien holder. Because it is riskier for the lender, it usually comes with a higher cost for the borrower.

In bankruptcy proceedings, the absolute priority rule generally applies. Secured creditors with a first lien are paid from the proceeds of their collateral first. Second lien holders only receive payment if any funds remain after the first lien is fully satisfied.

Yes, the principle can extend to third, fourth, or even more liens, each subordinate to the one before it. Each successive lien typically carries exponentially greater risk and a higher required rate of return.

A legal claim on a borrower's assets that is subordinate to a first (or prior) lien. In case of default, holders of a second lien are repaid only after the first lien holder's debt is fully satisfied.

Second lien is usually technical/formal in register.

Second lien: in British English it is pronounced /ˌsekənd ˈliːən/, and in American English it is pronounced /ˌsekənd ˈliːən/. Tap the audio buttons above to hear it.