Which instrument is used to adjust mortgage priority between lenders when refinancing a property with existing encumbrances?

Which instrument is used to adjust mortgage priority between lenders when refinancing a property with existing encumbrances?

• A. Deed of Trust
• B. Subject to Loan
• C. Mortgage Subordination Agreement
• D. Exculpatory Clause

Answer: (C)

When you refinance a property that already has liens, the order in which those liens are paid during a foreclosure matters. To change that order so the new loan can take priority over existing encumbrances, the lender and the current lien holder use a Mortgage Subordination Agreement. This document has the existing lienholder agree to subordinate their lien to the new mortgage, effectively confirming that the new loan will be paid first if the property is foreclosed. It’s recorded to be enforceable and ensures the new lender’s security interest is prioritized. Why this fits: the subordination agreement is specifically designed to alter the lien priority between lenders, which is exactly what’s needed during a refinance with existing encumbrances. Why the others don’t fit: a Deed of Trust is the security instrument itself, not a tool to change priority. “Subject to” Loan describes taking title while the old loan remains in place, not adjusting lien order. An Exculpatory Clause limits liability or waives certain rights, not lien priority.

When you refinance a property that already has liens, the order in which those liens are paid during a foreclosure matters. To change that order so the new loan can take priority over existing encumbrances, the lender and the current lien holder use a Mortgage Subordination Agreement. This document has the existing lienholder agree to subordinate their lien to the new mortgage, effectively confirming that the new loan will be paid first if the property is foreclosed. It’s recorded to be enforceable and ensures the new lender’s security interest is prioritized.

Why this fits: the subordination agreement is specifically designed to alter the lien priority between lenders, which is exactly what’s needed during a refinance with existing encumbrances.

Why the others don’t fit: a Deed of Trust is the security instrument itself, not a tool to change priority. “Subject to” Loan describes taking title while the old loan remains in place, not adjusting lien order. An Exculpatory Clause limits liability or waives certain rights, not lien priority.