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When taking loans or investing in debt, it’s important to know and understand how the seniority of the debt is structured, since this determines who gets paid first in the event of a default, and therefore the risk/benefit ratio of each debt holder on a given property.

For most residential properties, banks and other institutional lenders (for example, credit unions) generally insist on a primary, or senior-most position. This means that if a property has to be sold to cover debt on which the owner has defaulted, the bank gets paid from those proceeds first, until all unpaid principal and interest is satisfied. If there’s money left over, it is then used to pay subordinated, or junior, debt (again, any

Among the many pithy teachings of Mr. Averbach, my high school history teacher, was “Debtors love inflation, because existing debt is the only thing that doesn’t get more expensive.”

Obviously, there are some qualifications with this kind of statement. For starters, this doesn’t apply to new loans originated during rampant inflation—those obviously get more expensive.  But the guy (or girl) who took his loan when inflation was 2% doesn’t owe more just because inflation spiked to 10%. In fact, as a general rule, that inflation is good for this person. Wages and income are likely rising (even if not keeping up with inflation), including any earned from the money borrowed (maybe it was for a college education, or an investment property), while the cost of his debt holds steady