Every private lender says "first position." Most investors nod at it. Fewer could say exactly what a first position mortgage does for them, what it does not do, and who actually holds it. This post answers all three, using the way 890 Capital is set up as the example.
What a first position mortgage is
A mortgage is a lien: a recorded claim against a property that secures a loan. A property can carry more than one. The order they were recorded in, and any agreements between lenders, decide who gets paid first if the property is sold or the loan goes bad.
A first position mortgage is the lien at the front of that line. If the property is sold, voluntarily or otherwise, the first lienholder is repaid before anyone behind it sees a dollar. A second-position lender is repaid only from what is left over. An unsecured lender has no claim on the property at all.
It does not make a loan safe. It decides who absorbs a loss first when one happens.
Who holds the mortgage in a private lending fund
This is where investor marketing in private credit often gets loose, so it is worth being precise.
At 890 Capital, the fund makes the loans and the fund holds the first position mortgages. Each loan is secured by a specific house, most of them in Charleston, Berkeley and Dorchester counties. Outside the tri-county we lend selectively, where we know the operator or the asset, and the bar goes up rather than down.
Investors do not hold a lien on any individual house. They hold notes issued by the fund, at a fixed rate for a fixed term (one, three or five years), with interest paid monthly by the 5th. You can see the current terms on the Easy Cash Flow page.
That distinction matters for two reasons. First, it is accurate, and you should be wary of any pitch that blurs it. Second, it is the reason the structure works: no single project decides your return. The fund's book of loans does. Since April 2024 the fund has made 230 first-position loans, 95 of which have already been paid off.
What a first position mortgage protects against
Being behind someone else. If a loan fails and the property has to be sold, there is no bank ahead of the fund waiting to be paid first.
A thin margin, if the loan was sized properly. Position only matters if there is value behind it. We cap loan-to-value at 75% and the book averages in the mid-60s, which means a house has to lose roughly a third of its value before the fund's position is under water. First position with 95% leverage is a much weaker thing than first position at two-thirds of value.
A borrower with no reason to fix the problem. A lender in first position has leverage in a workout. The borrower knows the lender can take the property, so a late loan usually gets caught up or restructured rather than abandoned.
What it does not protect against
A first position mortgage is a claim on a house. It does not guarantee anything, and it is worth being honest about the limits.
Time. Working out a late loan takes months. Taking a property back, finishing it and selling it takes longer. Interest keeps accruing, but money that is tied up in a workout is not being redeployed.
Cost. Legal fees, carrying costs, and the cost of finishing a renovation all come out of the recovery. The equity cushion has to cover those as well as any fall in value.
A bad valuation at the start. If the loan was sized off an optimistic appraisal, the cushion was never really there. That is why we underwrite the house before the borrower, using sales from a few blocks away rather than a few zip codes, and checking the renovation budget line by line before we look hard at the person.
Unfinished work. A half-renovated house is worth less than either the purchase price or the finished value suggests. That risk is managed by releasing renovation money in stages, after someone has stood in the house and checked the work. See how the hard money draw process works.
Liquidity. A note has a term. Your capital is committed for that term.
Loans do go late. Ours do. First position does not prevent that. It decides where the lender stands when it happens.
Questions to ask any lender about first position mortgages
If you are comparing private lending funds, these four questions separate a real first-position lender from a marketing line:
- Is every loan in first position, or most of them? "Primarily" and "exclusively" are different answers.
- What was the loan-to-value at origination, on average and at the maximum? Position without a cushion is not worth much.
- Who holds the lien: the fund, or the investor? The honest answer for most funds is the fund. If someone tells you that you personally hold the mortgage on a house, ask to see the recorded assignment.
- What happens operationally when a borrower misses a payment? Who calls, who visits the property, and how long before a decision is made.
A lender who answers all four without hedging is telling you something. So is one who does not. The SEC's investor education site has a useful plain-English primer on what investment risk actually means, and it is worth reading before you commit capital anywhere.
The short version
A first position mortgage means the lender is first in line on the property. In a fund like ours, the fund is that lender. Investors hold notes issued by the fund, and the fund's assets are first-position loans lent at roughly two-thirds of value. It is a plain structure. That is the point of it.
You can follow what we are lending on in our news and updates, or request investor access to see the offering documents.
For accredited investors only. This post is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any security. Any offering is made only through the fund's private placement memorandum under Rule 506(c) of Regulation D. Investing in private real estate debt involves risk, including the possible loss of principal. Past performance does not guarantee future returns. See 890capital.com for full disclosures.
