Lien position, also called lien priority, is the order of seniority in which the law recognizes lenders’ claims against a property. It determines the sequence of who gets paid in the event of a foreclosure.
Liens
A lien is security for a debt. It grants the lender the right to take possession of the property if the borrower can’t make the payments. A mortgage is the most frequent example of a lien. (The actual loan is a promissory note. The mortgage itself is the lien.)
Property owners, though, might take out additional mortgages to either reinvest in the property or meet current expenses. They might also take out lines of credit — the authority to borrow up to a maximum draw — with the property held as collateral.
Government authorities or courts also impose liens to ensure payment of taxes, fees or judgments. Condominium and homeowners’ associations can also place liens on members’ properties to ensure payment of fees and assessments.
Determining lien position
According to law-for-laypersons site Nolo.com, “liens have priority in the order that they are filed in the county records office. This is known as the first in time, first in right rule.” But that’s a general rule, exceptions abound and each state determines lien position a little differently. As a result, the mortgage lender almost always has first lien position. In the case of foreclosure, the borrower would have to pay back this debt before settling with other lien holders. Depending on circumstances, though, the borrower might have to repay debts owed to contractors, tax collectors or other interests first.
