New York Real Estate Salesperson ExaminationProperty OwnershipMedium
A homeowner obtains a new first mortgage to purchase a property. Later, they take out a home equity line of credit (HELOC) secured by the same property. If the homeowner defaults on both loans, which lien will typically have priority in a foreclosure sale in New York?
- ANeither, as both liens would be treated equally in a foreclosure.
- BThe HELOC, because it was taken out more recently.
- CThe first mortgage, because it was recorded first.
- DThe HELOC, because it represents a more flexible form of credit.
Show answer & explanationAnswer & explanation
Correct answer: C. The first mortgage, because it was recorded first.
In New York, as in most states, lien priority is generally determined by the order of recording. The first mortgage, being recorded before the HELOC, would typically have senior priority.
Why the other options are wrong
- A. Liens are not treated equally; a clear hierarchy of priority exists, especially between first and second mortgages.
- B. The recording date, not the recency of the loan, determines priority for voluntary liens.
- D. The nature of the credit (flexible or not) does not determine lien priority.
Lien Priority
The order in which liens are paid off in the event of a foreclosure, generally determined by the date the lien was recorded.
- First in time, first in right (for recorded liens).
- Property taxes and special assessments usually have super-priority.
- Determines who gets paid first from sale proceeds.
Memory trick: Recording's Ranks Rule, always remember the date.