Priority of Mortgage Lien Clause

Priority of Mortgage Lien Clause

The Priority of Mortgage Lien Clause is a provision in a mortgage agreement that establishes the ranking of the mortgage lien relative to other liens on the same property. This clause is crucial in determining the order in which creditors will be paid in the event of foreclosure or liquidation of the property.

In essence, the Priority of Mortgage Lien Clause dictates that the mortgage secured by the property will have a senior (or superior) status compared to other claims or liens, such as second mortgages, home equity lines of credit, or mechanics’ liens. If the property is sold to satisfy debts, the mortgage with the highest priority is the first to be repaid from the proceeds of the sale.

For example, if a homeowner has a first mortgage (with a Priority of Mortgage Lien Clause) and later takes out a second mortgage, the first mortgage will have priority over the second. In the event of foreclosure, the lender of the first mortgage will be paid off first, and only after that will any remaining funds be used to pay off the second mortgage lender. This clause protects the interests of the primary lender and establishes a clear hierarchy among various creditors.