Legal Definitions - prime

When a legal claim or right is said to "prime" another, it means that the first claim or right takes precedence or has superior priority over the second. This concept is crucial in determining whose rights must be satisfied first, especially when there are competing claims to the same asset or resource.

Here are some examples to illustrate this concept:

• Example 1: Real Estate Mortgages

  Imagine a homeowner who takes out a primary mortgage from Bank A to purchase their house. A few years later, they take out a second mortgage, often called a home equity loan, from Bank B. Because Bank A's mortgage was recorded first in the public land records, Bank A's claim on the property would prime Bank B's claim. If the homeowner were to default on both loans and the house had to be sold, Bank A would be paid back in full from the sale proceeds before Bank B receives any payment.

• Example 2: Business Assets and Loans

  A small business secures a loan from Lender X by granting Lender X a security interest in all of its inventory. Lender X properly files a Uniform Commercial Code (UCC) financing statement to perfect its interest. Later, the business takes out another loan from Lender Y, also attempting to use the same inventory as collateral. Because Lender X perfected its security interest first, Lender X's claim on the inventory would prime Lender Y's claim. If the business defaults, Lender X would have the primary right to seize and sell the inventory to recover its loan before Lender Y could do so.

• Example 3: Government Tax Liens

  A company owes a significant amount in federal back taxes, and the government places a tax lien on its property. Separately, the company also has outstanding debts to several suppliers, who are considered unsecured creditors. In many legal contexts, such as bankruptcy, the government's properly filed tax lien would prime the claims of the unsecured suppliers. This means that the government's claim for unpaid taxes would be satisfied from the company's assets before the suppliers receive any payment for their outstanding invoices.