Ace the Hawaii Pre-Licensing Exam 2025 – Surf Your Way to Real Estate Success!

Subordination in real estate refers to the process of lowering the priority of one claim or lien on a property in relation to another. This typically occurs when a lender agrees to subordinate their interest in a property to another lender, which may allow the new lender to take a higher priority position for repayment in the event of foreclosure.

For example, if a property owner has an existing mortgage and wants to take out a second mortgage, the second lender may require subordination of the first mortgage to ensure that the new loan has priority over the older debt. Understanding this concept is crucial for real estate transactions, as it can significantly affect the order in which creditors receive payment in the case of default or sale of the property.

The other choices involve concepts that do not accurately describe subordination. Establishing new property boundaries involves surveying and legal procedures, which is not related to the hierarchy of liens. Increasing property values pertains to market conditions and improvements to the property itself, rather than the legal standing of claims. An agreement between neighbors regarding property use pertains to easements or covenants, which is different from the concept of lien priorities.