Certified Residential Appraiser Practice Exam

What is a Junior Lien?

1. A lien that has priority over all other liens

2. A subordinate lien placed on a property after a prior lien

3. A type of mortgage exclusively for first-time buyers

4. A loan specifically for the repair of existing liens

The correct answer is: A subordinate lien placed on a property after a prior lien

A Junior Lien refers to a subordinate lien placed on a property after a prior lien. This means that it is recorded subsequent to an earlier lien, making it secondary in terms of claim to the property’s value in the event of foreclosure or liquidation. When multiple liens are present, those that are junior will be paid off only after the senior lien is settled. In real estate finance, the order of liens is crucial during foreclosure proceedings because the priority of each lien determines the order in which creditors are paid. Typically, junior lien holders face increased risk since they will only receive payment if there is sufficient equity in the property remaining after servicing the senior lien. This concept is vital for appraisers and real estate professionals to understand in order to properly assess property value and lien implications.