What does loan priority determine in case of liens?

Loan priority plays a critical role in determining the order in which liens are satisfied during foreclosure or the sale of a property. When multiple liens exist on a property, the hierarchy established by loan priority dictates the sequence of payment.

In this context, the highest priority lien, often referred to as a "senior lien," gets paid first from the proceeds of a foreclosure sale. Conversely, junior liens, which come after the senior lien, can only be satisfied after the senior lien has been fully paid. If the sale proceeds are insufficient to cover the senior lien, junior lienholders may not receive any compensation. This system ensures that the lender holding the first lien has the first claim to payment, helping to manage risk and lending practices. As such, the concept of loan priority is essential in protecting the financial interests of senior lienholders in real estate transactions.