A contractual statement, frequently encountered in mortgage agreements, dictates the order of priority for repayment in the event of default. This provision establishes that one debt claim will take precedence over another. A common application involves a refinance where the new mortgage is given priority over an existing lien, such as a home equity line of credit. For instance, if a property owner refinances a primary mortgage, a clause might stipulate that the new mortgage takes precedence, even if the home equity line of credit was established earlier.
This legal element is significant as it influences the risk profile for lenders and the accessibility of financing for borrowers. By adjusting the hierarchy of claims, it enables property owners to secure more favorable loan terms or access funds that might otherwise be unavailable. Historically, such stipulations have played a vital role in facilitating real estate development and investment by clarifying the financial relationships between different creditors.
