What does it mean to "subordinate" a lien?

Subordinating a lien refers to the process of establishing that a lien has a lower priority than another lien. This means that in the event of a foreclosure or the liquidation of assets, the subordinated lien will be paid out only after the higher priority lien has been satisfied. This is an important concept in the context of mortgages and other secured loans, as the position of a lien can significantly affect the risk and return for lenders.

By choosing to subordinate a lien, a lender or lien holder agrees to allow another lien to take precedence. This can happen in various situations, such as when a homeowner wishes to refinance their mortgage and the new lender requires their lien to be in a superior position to any existing liens. In such cases, the subordinated lien holder must recognize that their lien is now behind another in terms of claims to the property. This is essential for understanding the overall hierarchy of claims against a property and the potential implications for those holding interest in it.