Recording Liens on a Real Property Mortgage

April 13, 2006

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One recommended asset protection strategy involves using an operating/holding company business structure. Then, liens are used to secure any extension of credit from the owner or holding company to the operating company.

In this case, the loaned cash or purchased property is backed by your secured lien on either that same property or some other asset owned by the operating company. This structure protects the operating company's assets against the claims of creditors.

A lien on real property (land and buildings) must be created by a mortgage, which is recorded along with the related promissory note on the land records. The land records are located at the county court house in many states or in the local town clerk's office. The lien must be recorded to give the owner a priority claim. If the mortgage is not recorded, the claims of other creditors on the real property may take precedence.

States have different rules when it comes to priorities for recorded liens on real property. However, many states follow the general rule that the first to record takes priority. Thus, if the owner fails to record, the holding entity's lien may be ineffective, as illustrated in our Case Study -- Funding Multiple Entities.

In addition, the rules are different for liens on personal property, as well as for currently owned assets vs. existing or yet-to-be-acquired assets.