Tom wants to buy a $90,000 house. The bank will lend him a $70,000 first mortgage loan; he has to come up with the other $20,000. Heather lends Tom $20,000 so that Tom can buy a house. As part of their agreement, Tom signs a second mortgage agreement with Heather, so Heather can record a claim against the property until that second mortgage is paid. Unfortunately, Heather forgets to record it.
After a couple of years, Tom decides to sell the property for $100,000. From the proceeds, the closing agent automatically pays off the bank's recorded first mortgage lien. Since there is no second mortgage lien recorded for Heather, Tom gets all the rest of the proceeds. Of course, Heather can sue Tom for repayment, but it would have been much easier if she had recorded her second mortgage lien.
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