Certified Residential Appraiser Practice Exam

What does it mean when a lien is subordinate?

1. It holds the highest priority over all liens

2. It is legally prioritized lower than another lien

3. It is secured by a property deed

4. It requires higher interest rates

The correct answer is: It is legally prioritized lower than another lien

A subordinate lien is one that is positioned lower in priority compared to another lien. This means that in the event of a foreclosure or liquidation, the subordinate lien must be paid after the higher-priority lien has been satisfied. For example, if there are multiple liens on a property, the first mortgage would be a senior lien and would receive payment first. Only after the obligations of the senior lien are fulfilled would any remaining proceeds be available to satisfy the subordinate lien. This concept is crucial in real estate and lending because it affects the risk and potential return on investment. Lenders and investors assess the position of liens to understand their rights and the likelihood of recovering their funds in case of borrower default. The other options provided do not accurately capture the essence of subordination; they refer to different aspects of lien characteristics or implications.