California Real Estate Practice Exam

What is required for a trust deed to take priority over other recorded instruments?

1. Being recorded first

2. Higher loan amount

3. Having a subordination clause

4. Having multiple signatures on the deed

The correct answer is: Being recorded first

For a trust deed to take priority over other recorded instruments, it is essential that it is recorded first. When a trust deed is recorded, it creates a public record of the lender's interest in the property. In real estate, the principle of "first in time, first in right" generally applies; this means that the first party to record their interest typically has priority over others who record at later dates. This priority is crucial because it affects the order in which creditors can recover their claims against the property in case of foreclosure or default. If subsequent trust deeds or liens are recorded after an initial trust deed, they will be subordinate to the first one, which means they will be repaid only after the first trust deed has been satisfied. The other options do not establish priority in the same way. A higher loan amount does not influence the ranking of recorded instruments; it merely reflects a different financial arrangement. A subordination clause allows a later-recorded instrument to take precedence over an earlier one but does not inherently create priority for the original trust deed. Lastly, having multiple signatures on the deed might indicate the agreement of involved parties but does not affect the order of priority concerning recorded instruments.