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Seller Foreclosure Risk: Don't Lose Your Work! #shorts

9 Jun 2026 · 1 min

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0:53

In this short, three participants discuss the danger a developer faces when a seller retains a first‑position lien (or deed of trust) on a property they are improving. Speaker A warns that giving the seller a first‑position lien on an $8 million loan lets the seller wait until the developer completes entitlement work and construction, then claim a default and foreclose, potentially seizing the land and wiping out all the developer’s investment. Speaker B asks whether the seller owns the property outright and seeks clarification on the loan structure. Speaker C confirms the legal risk under Arizona law, noting that a promissory note secured by a first‑position deed of trust gives the seller the power to initiate foreclosure, lis pendens, or other actions that could nullify the developer’s improvements. The conversation aims to outline a case‑study scenario to illustrate how a seller could exploit this position and to highlight the need for careful deal structuring to protect developers from losing their work.

Chapters

Are you in the deal room? First position lien on the $4 million. So that way, after we get done doing entitlements or anything like that, that the seller cannot immediately invoke a position of superiority or dominance and take away the— and basically foreclose on us after we get all the work done.
Okay.
Because literally giving them first position on that $8 million loan gives them the ability to wait until all the work is done and then say, oh, you guys missed a payment, and then take the land from us., and we would have no way to fight that. It'd be years to fight back and forth.
Okay. Gotcha. So I'll just—
and while they had it, they could still do all the work. Like they, they could literally move on with all— they wouldn't be able to— we would not be able to stop them from doing anything about it. So let's run that in your deal hunter. Let's take a look at it real quick.
Is the, is the property owned outright by the seller?
They don't have a loan on it or position on it. Ready?
Okay. Do you want to dictate?
I want to build out a case study, a scenario for the property in question. Without the first position lien available and the seller giving, uh, only agreeing to a first position lien. If the seller agreed to the first position lien, let's build out a case study of what it would look like if we did all of the work to the property to get it ready for vertical construction. What are the chances that the seller could then come back and exercise first lien position and do a foreclosure, lis pendens, or any other, uh, action on the property that could forfeit or sacrifice all the work we've done to it. Under Arizona law, it is understood that a promissory note with a deed of trust for the seller on this in first position risks our position as developers in doing all the work. Is this or is this not correct?
Okay. Yes, the concern is real. If the seller holds a first position deed of trust, then if you default, the seller can foreclose and take the property. Including all the improvements. That's correct.