What does "subordination" refer to in the context of liens?

Subordination, in the context of liens, refers to the process of making one lien secondary to another. This typically occurs when a lender agrees to allow another lender to take a higher priority position in the lien hierarchy, thereby reducing the priority of the first lien. This is important in transactions such as refinancing, where a new loan may need to take precedence over an existing loan for the property.

When subordination happens, the lien that is subordinated to another comes after the new primary lien in terms of claims to the property's value in the event of a foreclosure or liquidation. This ensures that the new lender has a preferential claim compared to the subordinated lien, which is crucial for securing financing and managing risk in real estate transactions. Understanding how subordination impacts lien priority is vital for title insurance producers, as it affects both the insurability of the title and the risk assessment for lenders.