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CA Real Estate License Exam 2025: Detailed Explanations (Q&A )

Question 674: A provision in a security instrument stating that the instrument will have a lower lien priority than another mortgage or deed of trust is called a:
A. Acceleration clause.
B. Secondary lien position clause.
C. Subordination clause.
D. Priority positioning clause.
Correct answer is (C). Subordination clause.
Acceleration clause allows the lender to demand immediate payment of the entire loan balance if the borrower defaults on certain conditions, such as failing to make payments. It does not relate to lien priority. While Secondary lien position clause describes the outcome of a subordination, it's not the name of the clause itself that dictates the change in priority. Priority positioning clause is not a standard term used in security instruments to describe the agreement to alter lien priority. A subordination clause in a mortgage or deed of trust is a provision that allows a later-recorded lien to take priority over an earlier-recorded one. This is commonly used in situations like: (1) Refinancing: When a homeowner refinances their first mortgage, the new lender usually wants to be in the first lien position. A subordination clause in the original mortgage allows it to automatically become junior to the new, refinanced mortgage. (2) Home equity lines of credit (HELOCs) or second mortgages: These are typically junior liens to the first mortgage. The first mortgage often contains a subordination clause that anticipates and allows for these subsequent liens to be in a lower priority position. (3) Development loans: A lender providing financing for the development of land might require a previously recorded blanket mortgage to be subordinated to the new construction loan. Therefore, the specific provision that establishes a lower lien priority for a security instrument compared to another is called a subordination clause.