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Define Lien Priority in Real Estate

Lien Priority: 

Lien priority is the order in which different people or organizations, who are owed money, get paid when a property is sold. Lien priority helps decide who gets paid first, second, third, and so on, when a property owner needs to pay off their debts.


For example, John has a mortgage on his house, owes property taxes, and owes money to a contractor. When he sells his house, the money from the sale will be used to pay these debts. In most cases, property taxes have the highest priority, so they get paid first. Next, the mortgage is paid, and finally, the contractor gets their money.

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"A Deep Dive for Real Estate Agents"

When studying lien priority for a real estate agent exam, it's essential to understand several key aspects that can affect the order in which debts are paid:

Jurisdictional differences: Lien priority rules may vary depending on the jurisdiction, so it's crucial to familiarize yourself with the specific regulations in your area.

Types of liens: There are different types of liens, such as voluntary liens (like mortgages) and involuntary liens (like tax liens or mechanic's liens). Knowing the various types of liens will help you understand their priority in specific situations.

Subordination agreements: In some cases, lienholders may agree to change the priority of their liens through a subordination agreement. This could happen, for example, when refinancing a mortgage or obtaining a home equity loan.

Recording date: The date on which a lien is recorded can affect its priority. Generally, the earlier a lien is recorded, the higher its priority will be. However, some liens, like property tax liens, automatically have higher priority regardless of their recording date.

Foreclosure: In a foreclosure situation, the lien priority determines which lienholders are paid first from the proceeds of the property's sale. Junior lienholders (those with lower priority) may not receive full payment if there isn't enough money from the sale to cover all debts.

Bankruptcy: If the property owner files for bankruptcy, the bankruptcy court may have the authority to alter lien priorities or discharge certain debts, which can affect the order in which lienholders are paid.

By understanding these aspects of lien priority, you'll be better equipped for your real estate agent exam and better prepared to assist clients in navigating the complexities of property liens and debt repayment.
Illustration of Dumb Ox mascot.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

In a town where houses need some care,
Lien priority helps make things fair.
John has debts, oh so many,
Mortgage, taxes, and bills aplenty.

He sells his house to pay what's due,
But who gets paid first, what's the right queue?
Lien priority helps us see,
The order of payment, from A to Z.

First property taxes, it's number one,
Then the mortgage, when that's done.
Last comes the contractor, awaiting his share,
With lien priority, debts are settled with care.

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