Lien PriorityCredit Repair Definition
The order in which different liens on the same property are paid off if the property is sold.
Definition
Lien priority determines the order in which competing liens against a single property are paid if the property is sold, typically through foreclosure or bankruptcy. Generally, lien priority is established by the order in which the liens were recorded in public records – 'first in time, first in right.' The lien recorded earliest is the senior lien and gets paid first from the sale proceeds. Subsequent liens are junior liens and are paid in the order they were recorded, but only if funds remain after satisfying the senior lien(s). However, certain liens, like property tax liens and some mechanic's liens, may automatically gain 'super-priority' status by law, meaning they jump ahead of previously recorded liens, including first mortgages. Intercreditor agreements can also alter lien priority between specific lenders.
Frequently Asked Questions
How is lien priority generally determined?
The general rule is 'first in time, first in right,' based on the date and time the lien was officially recorded in the county's public land records. The first lien recorded is senior, the second is junior to the first but senior to the third, and so on.
Are there exceptions to the 'first in time' rule?
Yes. Certain liens are given super-priority by statute, meaning they take precedence regardless of when they were recorded. Property tax liens are the most common example. Some states also give super-priority to certain mechanic's liens or homeowners association (HOA) liens.
What happens to junior liens if foreclosure proceeds don't cover them?
If the proceeds from a foreclosure sale are only sufficient to pay off the senior lien(s), the junior liens are typically wiped out with respect to the property. However, the underlying debt owed to the junior lienholder may still exist as an unsecured debt, and the junior creditor might still be able to pursue the borrower personally for payment (unless prohibited by anti-deficiency laws).
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