When a judge has to enforce a ruling and the debtor in the case owns real estate property, then recording liens and ensuring the priority of the lien is clear is of tremendous importance. In theory, when a debtor has sufficient equity in their property, the property should be refinanced in order to pay the money that is owed. Alternatively, the creditor may agree to have the money paid to them once the property is sold. In most cases, the first person to have recorded a lien will be the winners. However, it is very important to seek legal advice about this if you do have any concerns about a mechanics lien.
First to Record
The idea of the first to record a lien being the winner is because liens are recorded in chronological order. Hence, the first lien is ranked superior to any others. Some legal professionals will refer to these as the “senior liens”. So long as the senior lien is also valid, then all the other liens will have to wait their turn. So, for instance, if the property is sold for less money than the value of all the liens put together, the liens that were filed last are unlikely to be paid.
This is a strong possibility when properties are sold in Sheriff’s auctions or foreclosure. The money that is raised here will be used to pay the most superior lien, working its way downwards from there. Indeed, any future lien, known as a junior lien, can be wiped out if no money is available for them. Only if there is any leftover equity will these liens be paid, and they will be paid in chronological order.
If you have placed a mechanic’s lien on a property, you should contact the county recorder to see if any other liens are on the property, so that you know whether your lien is a superior or junior one. This can be very important, particularly if you were intending to ask a judge to foreclose on the property that you have placed the lien on. Additionally, you also have to consider the possibility that the debtor will die, in which case last illness and funeral expenses will have to be covered first as well.
First Recorder Is not Always the Winner
They say that the exception proves the rule. This is because different states have different laws surrounding their property laws. For instance, in Florida, liens placed by banks will always be classed as superior, regardless of when they have recorded it. Florida also has what is known as an unlimited homestead exemption, this means that if someone lives in the property against which you have placed a lien, you may still not be able to force payment until the property owner decides to sell, or dies. The exception to the homestead exemption, however, is a federal tax lien.
As you can see, there are many complicated rules and regulations to think about when it comes to liens. Make sure you seek proper legal advice.