What does lien priority determine?

• A. The interest rate charged on the loan
• B. The term of the loan
• C. The appraised value of the property
• D. The order of payoff among liens

Answer: (D)

Lien priority determines the order in which liens are paid from the sale or foreclosure proceeds. It doesn’t affect the interest rate, loan term, or the property’s appraised value. The lien that has the highest priority is paid first—typically the one that was recorded earliest—though certain liens, like property taxes and assessments, often take precedence over private liens regardless of timing. After the senior liens are satisfied, the next in line are paid, and so on. If there isn’t enough money to cover all liens, the senior ones receive what they’re owed and junior lienholders may receive little or nothing.

For example, if a property has a property tax lien, a first mortgage, and a second mortgage, the tax lien gets paid first, then the first mortgage, and finally the second mortgage if funds remain. So lien priority is about who gets paid first, not how large the loan is or what the property is worth.