Lien Priority
Lien priority determines the order in which creditors get paid. Learn how lien priority applies to different types of liens across jurisdictions.
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Understanding Lien Priority:
What is Lien Priority?
To understand lien priority, it helps to first have a clear picture of a lien. Liens are a legal vehicle through which creditors can try to collect money owed. Liens attach to property and can result in foreclosure if they go unpaid. Lien priority determines the order in which creditors get paid.
When multiple people/entities are owed money, and there’s only so much money to go around, lien priority helps determine who gets paid first. For instance, if two liens are filed and Lien A has priority over Lien B, Lien A gets paid in full before Lien B will see a dime.
How is lien priority determined? It depends on the type of lien (we’ll be dealing with various property liens on this page) and any state-specific or federal rules that apply to it.
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Determining Lien Priority
Lien priority is normally determined on a “first in time, first in right” methodology. On the surface, the meaning is simple: the first lien in line is the first lien to get money.
But, this rule is more of a guideline than an absolute. Certain liens take priority over other liens regardless of the recording date. Plus, states often have their own rules about priority.
Here are a few ways liens are categorized by priority:
- Senior liens are those with the highest priority (often, but not always, the first lien recorded on a property), to be paid back in full before other liens are paid.
- Junior liens are those with lower priority, to be paid after senior liens are paid.
- Super liens can rise above all others and take the first place in line even if they weren’t the first to record. Super liens may be conditional; the rules surrounding them are generally dictated by state statute. Property tax liens and mechanic’s liens are most commonly granted super-lien status, but many states also grant HOA liens super-priority status for a set amount of time or back-payments.
Liens are also categorized by whether they’re voluntary or involuntary:
- Voluntary liens are those that a property owner chooses to put in place, such as a mortgage.
- Involuntary liens are put in place by creditors. The majority of liens are involuntary.
Whether a lien is voluntary or involuntary doesn’t necessarily impact lien priority, but it can be helpful to know how and why a lien is put in place.
Ultimately, there is no formula to determine who will get paid first in every property lien situation. The rules change according to specific circumstances, as described below.
Will I get paid if my lien has junior priority?
Maybe. If you have a junior lien, whether you get paid depends on how much money there is to go around. For example, if a property is foreclosed on, foreclosure fees and senior liens are paid out first. If there is still money left after those payments are made, money is distributed to junior liens in order of priority.
What happens if a property is foreclosed on before I get paid?
It depends. By the time a property is foreclosed, the importance of lien priority is in clear view, as junior liens may go unpaid or be nullified.
For example, in a mortgage foreclosure, junior liens such as judgment liens will likely be canceled out as payments will go to senior liens (like first mortgages or property tax liens) instead.
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Learn More About Law on CallLien Priority for Property Liens
It can be difficult to determine priority for property liens. Many property-related liens theoretically have high priority (even if they weren’t the first to record). In the event of a dispute, figuring out which liens are senior and which liens are junior can be a confusing process that may require lawyers and courts to sort out.
But before you take legal action, here’s an overview of how the priority of various liens might shake out:
Mortgage Liens
Mortgages are liens implemented by property owners. Here’s how lien priority typically applies to mortgage liens:
- First mortgage: The first mortgage is, you guessed it, the first mortgage you take out on a property. First mortgages are almost always recorded before any other liens are, and are high on the lien-priority ladder.
- Second and third mortgages: More than one mortgage can be taken out on a property. Second and third mortgages will have a lower priority than the first mortgage.
Tax Liens
Tax liens are involuntary and can be imposed by any level of government.
- At the federal level: Tax liens are created upon failure “to pay the tax after a demand by the Government for payment,” according to IRC § 6321. Federal tax liens can apply to both real and personal property. Federal tax liens generally follow the “first-in” rule regarding lien priority. The IRS may need to file Notice of Federal Tax Lien in order to preserve priority and their place in line.
- At the state or local level: Tax liens can also be imposed by cities, counties, and states. They can be created after property or other taxes go unpaid.
- Property tax liens: Liens put in place specifically for unpaid property taxes are often given super-priority—they may even have priority over mortgages and other forms of tax liens.
Mechanic’s Liens
Mechanic’s liens (aka construction liens) are involuntary and occur after there has been a missed payment for provided work or materials. Typically, all mechanic’s liens on the job will have the same priority.
- As they relate to priority, mechanic’s liens sometimes adhere to the first to record, first to get paid rule. But this is not always the case.
- Mechanic’s liens often “relate back” to when construction work began or when the lien claimant first provided work or materials. This means that the priority date will be earlier than the lien recording date.
- Mechanic’s liens may have priority over most previously recorded liens.
A handful of states, including Oregon and Montana, conditionally allow for mechanic’s liens to have super-priority, so they may end up with higher priority than liens like mortgages or mechanic’s loans.
Homeowners’ Association Liens
- Homeowners’ Association liens are involuntary, created after failure to pay HOA fees and assessments. HOA liens often attach to properties automatically, once payment is past due.
- HOA liens typically have junior priority, falling beneath mortgages and other liens.
However, about 20 states grant HOAs super-lien status. In those states, HOA liens are given senior priority under certain circumstances. For example, in Connecticut, HOA liens have priority for six months of past-due payments.
Judgment Liens
- Judgment liens are involuntary and can be created after someone sues and wins. They are put in place after the judgment is recorded against a property, which may happen automatically or may require a filing.
- Judgment liens can apply to both real and personal property.
- Usually, judgment liens are lower on the priority ladder than other liens if the “first-in” rule doesn’t apply.