Mechanics Liens and Mortgages: Which Lien Gets Paid First?

If you are in the construction field, you have a unique advantage, when it comes to ensuring that you get paid for the work that you do: you have the ability to put a mechanics lien on the property that you did work on or for, and even, if necessary, the ability to foreclose on property, if the work that you did on the property is not paid for.

But placing liens on property requires that you have an understanding of how liens work–specifically, the concept of lien priority.

Multiple Liens

It is not unusual for a given piece of property to have multiple liens on it. Everything from homeowners associations to judgments to home equity loans to city code violations to back owed taxes, can all result in liens on property if they go unpaid.

That begs the question of, when property is sold or transferred or foreclosed on, which lienor gets paid first? This is particularly important with property that has insufficient equity, and thus, not enough equity to pay all the lienors waiting to get paid from the proceeds of the sale.

Order of Recording and Notice of Commencement

Generally, absent special laws, liens get paid in the order that they were recorded.

In most cases, construction companies that place liens on property, especially residential property, may find that there is a mortgage from the bank on the property. Because these mortgages were usually recorded first, long before any construction started, they usually will get priority over your mechanics lien.

A construction lien however, dates back to when the notice of commencement was recorded. This is why it’s so beneficial to file the notice as soon as possible. Note that at the time you file the notice of commencement, you may have no idea whether you’ll get paid or not–and in many cases, it will be irrelevant, because you will get paid and there will be nothing to worry about.

But even if it takes time before you do realize you were not paid in full for construction you did on property, your lien priority will be determined or dated by when you filed that notice of commencement.

Note that even if a mortgage gets recorded after you file the notice of commencement, but before the completion (and possible non-payment for) the construction work, your lien will date back to the original commencement notice, giving your lien priority over the mortgage in that situation.

Checking for Liens

Things like taxes, both federal and state, and some city ordinance or zoning violations, may jump to the top of the line when it comes to priority of liens, no matter when they were recorded.

That’s why before you start a construction project, you may want to see what liens exist on the property, or assess the owner’s ability to repay, or the likelihood the owner may owe things like taxes which could eventually become a lien.

Need help getting paid on your construction project? Call our Fort Lauderdale construction litigation attorneys at Sweeney Law P.A. at 954-440-3993 for help with your business litigation case.

Source:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0713/Sections/0713.07.html