Hawaii Pre-Licensing National Practice Exam

Which clause can make an existing mortgage subordinate to a later-recorded mortgage?

1. A release clause

2. A subordination clause

3. An acceleration clause

4. A defeasance clause

The correct answer is: A subordination clause

A subordination clause is specifically designed to establish the priority of one lien over another. When included in a mortgage agreement, it allows an existing mortgage to be made subordinate to another, later-recorded mortgage. This is particularly useful in situations where a borrower needs to refinance or secure additional financing without paying off the existing mortgage. By agreeing to a subordination clause, the lender of the existing mortgage acknowledges that in the event of foreclosure or liquidation, the lender of the new mortgage will have a superior claim to the property. This effectively allows the new lender to take priority over the existing one, facilitating the borrower’s access to additional funding while maintaining the initial mortgage. The other types of clauses mentioned do not serve this purpose: a release clause pertains to the release of a mortgage lien; an acceleration clause allows the lender to demand full repayment upon certain events; and a defeasance clause provides a way to void a mortgage once the debt is repaid. Thus, the subordination clause is the correct choice for altering mortgage priorities.