Key Takeaways
- An HEI investor records a lien (a legal claim) against your property but does not become a co-owner on your deed.
- Your first mortgage lender remains in a senior (first-priority) position, while the HEI investor typically holds a junior (second-priority) lien.
- Refinancing with an HEI often requires the investor’s consent to subordinate, and cash-out refinances may be restricted.
- If your primary lender forecloses, the HEI investor’s junior lien may be eliminated, though contract terms determine any remaining obligations.
Most homeowners know a home equity investment (HEI) gives an investor a share of their home’s future value, but fewer realize it also places a recorded lien on the property. This lien secures the provider’s right to repayment and can affect refinancing, future borrowing, and a sale. In most cases, the HEI lien is subordinate to your primary mortgage and becomes part of your property’s title record. Understanding how this lien works is essential before signing, as it determines payment order and your home equity’s flexibility.
In this article. (Skip to...)
- HEI lien recording
- Lien priority order
- Refinancing and borrowing
- Foreclosure and default
- Questions before signing
- FAQs
What gets recorded when you sign an HEI agreement
When you sign a home equity investment, the provider places a lien on your property to secure its interest in your home’s future value. This lien is typically subordinate to your primary mortgage and is repaid when you sell, refinance, or reach the end of the agreement, rather than through monthly payments. The lien remains on your title until repaid and can affect future borrowing and property transactions.
Check your HEI eligibility. Start hereThe investor is not on your deed
The HEI provider does not become a co-owner. Your name remains on the deed, and you retain legal ownership and control throughout the agreement. The lien gives the provider a contractual claim to future proceeds, not rights to occupy, manage, or make decisions about the property.
Common documents recorded against your property
HEI providers record legal documents to formalize their lien and protect their investment. These documents notify lenders, buyers, and title companies of the claim against the property.
- Deed of trust or mortgage lien. Secures the provider’s right to repayment under the agreement terms.
- Performance deed of trust. Reinforces obligations such as maintaining the home, paying taxes, and keeping insurance active.
- Memorandum of agreement. Places public notice on your title that an HEI exists.
- Option or restriction document. Outlines conditions related to the sale, transfer, or settlement of the agreement.
These recorded documents create a lien to secure repayment rights. They do not transfer ownership or allow the provider to take possession of your home under normal circumstances.
How lien priority determines who gets paid first
When you sell, refinance, or settle your HEI, proceeds are distributed according to lien priority, not directly to you. Each lien is paid in order of legal priority, with senior claims satisfied before any remaining equity is distributed to you.
Compare HEIs with multiple providers. Start hereStandard lien hierarchy
Lien priority generally follows a “first in time, first in right” rule: earlier-recorded liens are paid first, but property taxes always take top priority. This order establishes financial risk and repayment security for all parties.
- Property taxes and municipal liens. Paid first regardless of recording date.
- First mortgage. The primary lender is repaid before any junior liens.
- HEI lien. The provider receives payment after senior debts are paid.
- Other junior liens. This may include HELOCs, second mortgages, or judgment liens.
- Homeowner. You receive any remaining equity after all liens are satisfied.
Payment waterfall at sale or settlement
In practice, the payment order depends on the event that triggers settlement, but the hierarchy remains the same.
- When selling your home, proceeds typically pay off the first mortgage, then the HEI lien, with any remaining equity going to you.
- During a refinance with a buyout, the new loan usually pays off both the mortgage and the HEI lien at closing.
- If the HEI reaches maturity, you must settle the lien through a sale, refinance, or other funds before accessing any remaining equity.
How an HEI lien affects refinancing and future borrowing
A common concern with HEIs is future flexibility. If you want to refinance or take out a HELOC, the HEI investor’s lien position may pose a barrier.
Explore your home equity options. Start hereSubordination requirement
When you refinance your first mortgage, the new lender requires the first lien position. Since the HEI investor already has a recorded lien, they must typically agree to subordinate, allowing the new mortgage to take priority. Most HEI companies will subordinate for a rate-and-term refinance if you are securing a better interest rate or a different loan term. The process typically involves paperwork, a wait of several weeks, and, in some cases, a fee.
Restrictions on cash-out refinances and new debt
Cash-out refinances are treated differently. Many HEI agreements restrict or prohibit subordination if you withdraw extra cash from your home. The investor’s concern is that additional debt reduces the equity that protects their investment.
Common restrictions include:
- Maximum combined loan-to-value limits: The investor may refuse subordination if total debt exceeds 80% or 85% of your home value.
- Prohibition on cash-out: Some agreements only allow subordination for rate-and-term refinances.
- Approval requirements for new liens: You may need written consent before taking out a HELOC or second mortgage.
- Notification requirements: Even if approval is not required, you may need to inform the investor about any new borrowing.
Be cautious if you plan to refinance or access equity in the future. Review subordination terms carefully before signing an HEI agreement, as restrictions can significantly limit your financial flexibility.
What happens to the HEI lien in foreclosure or default?
Financial hardship can happen to anyone. If you fall behind on your primary mortgage, understanding how the HEI fits into foreclosure helps clarify your potential obligations.
Foreclosure by your first mortgage lender
Because the HEI investor holds a junior lien, they are at risk if the first mortgage lender forecloses. When a senior lienholder forecloses and sells, junior liens are usually eliminated if sale proceeds are insufficient to pay them.
Check your HEI eligibility. Start hereThis does not always mean the HEI investor loses everything. Some agreements allow the investor to cure your mortgage default to protect their investment. Others may permit them to pursue you for losses.
Right to cure and recourse provisions
HEI contracts vary and include default scenarios. Key terms to review include that the investor can make your missed mortgage payments on your behalf, then add those amounts to what you owe them.
- Nonrecourse language: The investor’s only way to recover losses is by making a claim against the property itself, not by going after your other personal assets.
- Limited recourse: The investor can pursue you personally, but only under specific circumstances.
- Deficiency provisions: These explain what happens if the home sells for less than the total owed to all lienholders.
Do not assume your HEI is nonrecourse. Review your agreement for specific language about foreclosure and whether the investor can pursue you for any remaining balance.
Questions to ask and documents to review before signing an HEI
Before committing to an HEI, gather key details to avoid surprises. Due diligence now can prevent issues when you sell, refinance, or reach your agreement’s end.
Explore your home equity options. Start hereAsk the following questions directly and get answers in writing:
- What type of lien will be recorded against my property?
- What is the lien’s priority position relative to my existing mortgage?
- Under what circumstances can you force a sale of my home?
- What is your subordination policy for rate-and-term refinances?
- What is your subordination policy for cash-out refinances or HELOCs?
- If my first mortgage lender forecloses, do you have recourse against me personally?
How to read your preliminary title report
A preliminary title report (also called a title commitment) lists all liens and encumbrances recorded against your property. Before closing on an HEI, request this document and review it for:
- The exact instrument being recorded: Deed of trust, memorandum, option, or other document type.
- The recording position: Confirmation that your first mortgage remains in the senior position.
- Any existing junior liens: How the HEI will interact with other recorded obligations.
- Restrictions or covenants: Any limitations on property use or transfer.
Request a draft title commitment before closing and ask your title company to confirm what will be recorded and where it ranks relative to your existing mortgage.
Ready for a home equity agreement?
Before signing, confirm how the HEA lien will be recorded, its position in your lien stack, and how it may affect refinancing or a future sale. Review settlement terms and ask how the lien interacts with your mortgage and any existing debt to understand the long-term impact on your equity.
Time to make a move? Let us find the right mortgage for you
HEI impact on home lien FAQ
Under normal circumstances, HEI investors cannot force a sale as a mortgage lender can through foreclosure. However, most agreements require settlement at the end of the term, which may require you to sell or refinance if you do not have other funds available. Some contracts include triggering events, such as extended vacancy or failure to maintain insurance, that could accelerate the settlement timeline.
Yes, adding a HELOC after an HEI typically requires the HEI investor’s consent. The new HELOC lender will also require clarity on lien priority, which can complicate approval. Some HEI agreements prohibit additional borrowing, while others allow it with restrictions on total combined loan-to-value ratios.
In most agreements, the investor shares in both depreciation and appreciation. If your home’s value drops, the investor may receive less than their initial investment at settlement. However, contract terms vary, and some agreements include floor provisions that guarantee a minimum return. Review your agreement to understand how losses are allocated.
While an HEI often occupies a similar lien position to a second mortgage, it differs fundamentally in structure. There are no monthly payments or interest rate, and the investor’s return depends entirely on the home’s appreciation rather than fixed repayment terms. The total cost of an HEI can be higher or lower than a traditional second mortgage, depending on your home’s appreciation over the agreement term.
