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1st Lien vs 2nd Lien
2nd liens are riskier for hard money lenders because, in the event of a foreclosure, the lender in the first position is paid back in full, before the hard money lender recoups their first dollar.
A traditional 1st-position bank loan in 2025 is around 6%, while 2nd trust deed rates range from 12% to 14%.
Speed of funding, flexibility, and short durations are advantageous attributes for real estate investors, drawing them to 2nd lien hard money loans.
1st Lien: Normally, a bank
2nd Lien: Bank mortgage sits in first position, and the hard money lender is behind it
1st Trust Deed Loan
- First priority in repayment order
- Used when the property is owned free & clear
- Ideal for purchasing property
- 1st mortgage rate is unaffected by the 2nd trust deeds
- Relatively low interest rates
- The bank lender in 1st position is likely to recoup all funds in the event of foreclosure
2nd Trust Deed Loan
- It can also be a bank, but is usually a hard money lender
- Ideal for leveraging equity quickly
- Comes with more risk, so expect higher interest rates and a more restrictive LTV
California 2nd Trust Deed Example Scenarios
Here are a few common scenarios of how a California second-lien hard money loan might be used, highlighting the associated risks and rewards.
#1. Real Estate Bridge Loan
An investor owns an apartment complex in Los Angeles with a small first mortgage.
They found a great deal on a fix-and-flip home for sale in Santa Barbara.
Knowing the property will sell quickly, the investor doesn’t have time to wait for a lengthy bank loan; they turn to a hard money lender who can provide funding in less than a week.
The investor taps into the available equity in the Los Angeles apartment complex using a 2nd trust deed loan from a hard money lender. They use those funds for either a down payment or to purchase the Santa Barbara property.
They borrow a second trust deed hard money loan at 12% for 1 year, accessing a combined LTV of 60%. Obtaining the second trust deed leaves the first-position bank mortgage in place and unaffected.
Once the Santa Barbara property is secured, the investor performs a fix-&-flip, holding the property for 6 to 9 months and reselling it for a handsome profit.
Risks can occur if renovations take longer than expected or property prices decline. If the borrower struggles to pay off the second lien when due, it could result in higher refinance rates or default.
#2. Cash-Out for Business Expenditures
A successful small business owner owns a $ 1.5 million mixed-use retail property in Irvine with a bank loan balance of $500,000.
They borrow a 2nd trust deed hard money loan of $250,000 for 24 months at an 11% interest rate, bringing the CLTV to 50%.
The fresh capital is used for the expansion of a new location.
Since the equity is substantial, the lender is comfortable with the loan.
This can be risky if the business expansion doesn’t go as planned, in which case the borrower might expose the mixed-use retail property to default.
About Crescent Lenders
We are 2nd hard money lenders based out of Los Angeles, California, specializing in 2nd trust deeds for business owners, homeowners, and real estate investors.
With over two decades of combined experience, we’ve helped countless borrowers procure fast funding for 2nd trust deed loans for various types of properties and investment scenarios.
Whether you need a cash-out refinance loan for a down payment on a commercial property in The Bay Area or a bridge loan for relocation of a multi-family building in San Diego, Crescent Lenders delivers 2nd lien financing for a diverse range of borrowers.
Since banks are often hesitant to grant a 2nd position mortgage against a property, Crescent Lenders uses a much simpler lending criterion, the most important factor being the value of the property and the combined-loan-to-value ratio of the 1st and 2nd loans.
Handpicked Resources
2nd Trust Deeds Guide 2nd Trust Deeds
The Ultimate Guide to 2nd Trust Deed Loans in California 2nd Trust Deeds
California 2nd Lien Hard Money Lenders 2nd Trust Deeds
2nd Trust Deed Glossary
About the Author
Russell Barneson Hard Money Lending
Russell is a seasoned real estate investor, writer, and hard money lending strategist, as well as the co-founder of Crescent Lenders. He holds a degree from the University of Southern California’s Marshall School of Business. Outside of work, Russell enjoys surfing and spending time outdoors with his dog, Amy.