A lender approved a refinance only if it will hold a first-priority lien. A title search reveals an older unreleased judgment lien that would have priority. What should occur before closing?

Correct Answer

C) Resolve, release, or subordinate the prior lien as required to obtain the approved lien position

Why this is correct: A lender's approval is conditional on the security of its lien. For a first-lien mortgage, the property title must be clear of any other liens that would have priority. An older, unreleased judgment lien is a valid claim against the property that, if not addressed, would take priority over the new mortgage based on its earlier recording date. As the original explanation states, this title defect must be resolved before closing. The standard methods are to have the judgment paid and released, to obtain a formal subordination agreement from the lienholder, or to otherwise clear the title so the new mortgage can be in the approved first-priority position. Why the other choices are wrong: "Ignore the judgment because the new mortgage is larger" is wrong because lien priority is determined by recording date, not loan size; the older lien remains first. "Assume recording the new mortgage automatically erases the older lien" is wrong because recording a new document does not extinguish prior valid liens; they remain on title until formally released. "Replace the title search with a Loan Estimate" is wrong because a Loan Estimate is a cost disclosure form; it cannot replace or fix the factual findings of a title search, which is a critical due diligence step. Exam tip: Lien priority is based on "first in time, first in right." An existing lien must be formally removed (released) or made junior (subordinated) for a new mortgage to be in first position.