What is required for a second lender to gain priority over the first lender in a mortgage case?

A second lender can gain priority over the first lender in a mortgage case through a subordination agreement. This legal document allows the first lender to agree to subordinate its lien position, effectively enabling the second lender to have a higher priority on the property. This prioritization is crucial during foreclosure proceedings; typically, the lender with the first lien has the first claim on the proceeds from a foreclosure sale.

The subordination agreement must be documented and signed by the first lender, indicating their consent to allow the second lender's lien to take precedence. This can be particularly beneficial for the second lender, as it might be a condition for them to provide financing, typically when the property might be considered at risk or when the borrower is perceived to need additional financing.

In contrast to this, other choices involve scenarios that either do not provide a legal mechanism for changing lien priority—such as paying off the first lender or the first lender giving up the mortgage—or introduce irrelevant factors, such as the buyer declaring bankruptcy, which does not facilitate priority changes between lenders.