What is a priority amount on a mortgage?

On a mortgage, a “priority amount” is the maximum sum a lender can claim from a borrower if they default, ensuring the lender’s security interest ranks above any subsequent lenders up to that amount.

What is it?
The priority amount is a specified sum in the mortgage agreement that determines the lender’s claim on the property in case of default.

What is the purpose?
It protects the lender by ensuring that their claim on the property, up to the priority amount, takes precedence over any other creditors or subsequent mortgages on the same property.

How does it work?
If a borrower defaults on their mortgage, the lender can claim up to the priority amount from the sale of the property, even if there are other debts or mortgages on the property.
The priority amount is not necessarily the total amount owed to the lender, but rather the maximum amount the lender can claim.

Example:
Imagine you have a mortgage with a priority amount of $1,000,000. If you default and the property is sold for $1,500,000, the lender can claim the first $1,000,000, and any remaining funds would go to other creditors or the borrower.