Lien Priority
The order in which competing liens against a property are paid from a sale or foreclosure — generally determined by recording date, with key statutory exceptions.
Lien priority is the ranking that determines the order in which multiple liens against the same property are paid out of the proceeds of a sale or foreclosure. When a property securing a note is foreclosed and sold, the money flows to lienholders in priority order — senior liens are paid in full before junior liens receive anything. Priority is therefore one of the single most important factors in how risky and how valuable a mortgage note is.
The general rule: "first in time, first in right"
In most states, priority follows the order in which liens are recorded in the public land records: the first lien recorded generally has the highest priority. This is why prompt recording of a mortgage or deed of trust matters — it locks in the lien's place in line. A note recorded as a first lien is paid before later-recorded junior liens; a second mortgage sits behind the first.
Major exceptions to recording order
Several liens jump the line regardless of when they were recorded:
- Property tax liens — usually super-priority, ahead of all private liens.
- Mechanic's liens — in many states they "relate back" to when work began, so they can prime a mortgage recorded after construction started.
- Certain government and HOA super-liens — some states give homeowners-association liens limited priority over a first mortgage.
- Subordination agreements — a lienholder can voluntarily agree to move behind another lien, changing the normal order by contract.
How priority plays out in foreclosure
When a senior lienholder forecloses, junior liens on the property are generally extinguished (wiped off the property), provided the junior lienholders receive proper notice — though the underlying debts may survive as unsecured claims. Conversely, if a junior lienholder forecloses, the buyer takes the property subject to the senior liens, which remain attached. This asymmetry is why first-lien position is prized: a first-lien holder controls the foreclosure and is paid first, while a junior holder is exposed to being wiped out or having to protect itself by curing the senior lien.
Why lien priority matters when you buy or sell a note
Lien priority is central to note due diligence. A buyer must confirm exactly where the note's lien stands:
- A clean, recorded first-lien note with no senior tax or mechanic's liens is the safest and most valuable.
- A junior-lien note is riskier — senior liens absorb the property's value first — and is priced at a deeper discount, sometimes heavily, depending on the equity cushion above the senior debt.
- Hidden senior liens (delinquent taxes, relation-back mechanic's liens) can quietly demote a note's effective position and must be uncovered through a title search.
For a note seller, documenting the lien's priority — and clearing any senior surprises — directly supports a stronger price and a faster close.
Example
A property worth $300,000 is foreclosed. It carries a $200,000 first mortgage, a $60,000 second mortgage, and a $10,000 junior judgment lien, plus $8,000 of unpaid property taxes. At sale, the proceeds pay in priority order: property taxes first ($8,000), then the first mortgage ($200,000), then the second mortgage ($60,000), leaving only $32,000 — not enough to fully cover the judgment lien. A buyer of the second mortgage note would have priced it knowing it sits behind both the taxes and the first lien.
This entry is general information, not legal advice. Lien priority rules, super-lien statutes, and foreclosure notice requirements vary significantly by state; consult a qualified attorney.