In a sale of a property with multiple lenders, which factor determines who is paid first?

Enhance your understanding of financial advising with the Qualified Financial Adviser (QFA) Loans Exam 1 Test. Prepare with detailed questions, hints, and explanations to ace your exam!

Multiple Choice

In a sale of a property with multiple lenders, which factor determines who is paid first?

The main idea is how lien priority works. When a property with multiple lenders is sold, the sale proceeds are distributed to satisfy encumbrances in order of the security interests’ priority. The lender with the highest priority—typically the first mortgage that was recorded—gets paid first from the proceeds, up to its claim. After that, the next lender in line is paid, and so on. If there isn’t enough money to cover all liens, the lower-priority lenders may receive little or nothing. The loan’s origination date, the loan amount, or the interest rate don’t determine who gets paid first; what matters is the priority of the recorded security interests (often described as first in time, first in right, subject to any subordination agreements or statutory priorities).

The main idea is how lien priority works. When a property with multiple lenders is sold, the sale proceeds are distributed to satisfy encumbrances in order of the security interests’ priority. The lender with the highest priority—typically the first mortgage that was recorded—gets paid first from the proceeds, up to its claim. After that, the next lender in line is paid, and so on. If there isn’t enough money to cover all liens, the lower-priority lenders may receive little or nothing. The loan’s origination date, the loan amount, or the interest rate don’t determine who gets paid first; what matters is the priority of the recorded security interests (often described as first in time, first in right, subject to any subordination agreements or statutory priorities).

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