What happens when two lenders have liens on a property and the second lender is given priority?

When one lender holds a lien on a property, and another lender holds a subordinate lien, the order of repayment upon foreclosure is determined by the priority of the liens. In a scenario where the second lender is given priority, it typically means that the first lender has agreed to subordinate their lien, allowing the second lender to have the first claim to the proceeds of the property in the event of a foreclosure.

A subordination agreement is a legal document in which the first lender agrees to place their lien in a lower priority position than the second lender's lien. This agreement clarifies the order in which the lenders will be paid in case of foreclosure, ensuring that the second lender can recover funds before the first lender. This action does not prevent the first lender from recovering funds ultimately but rather alters the sequence in which they can recover those funds.

This understanding of subordination agreements reinforces why this option is correct. If the first lender does not have such an agreement in place, they would retain their priority and, as a result, receive repayment before the second lender.