Liens generally follow the “first in time, first in right” rule, which says that whichever lien is recorded first in the land records has higher priority than later recorded liens. For example, a mortgage has priority over a judgment lien if the lender records it before the judgment creditor records its lien. As with most rules, a few exceptions to the right rule exist. Depending on state law, certain liens—like property tax liens, special assessment taxes, some HOA and COA assessment liens (called "super liens"), and mechanic’s liens—can have priority over previously recorded liens.
Lien priority determines the order in which creditors get paid following a foreclosure. If one lien has priority over another lien, it gets paid before the other lien. Frequently, homes have one or more liens on them. The homeowner chooses to place some liens, like mortgages, on the property. Other liens, like judgment liens, HOA liens, and mechanic’s liens, are involuntary.
Here are some common types of liens and where they usually fall in terms of priority.
If you take out a loan to buy a home, you'll likely sign two documents: a promissory note and a mortgage (or a deed of trust in some states). The note is your personal promise to repay the amount that you borrowed. The mortgage gives the lender a lien on your home. The lender records the mortgage—but not the note—in the county records.
This kind of home loan is known as the "first mortgage" or "first deed of trust." If you then take out another loan, like a second mortgage or home equity loan from a different lender, the second lender will record it and also get a lien on the property. Most subsequently-recorded liens, like judgment liens (see below), will be inferior to these mortgage liens.
Sometimes, a borrower needs two mortgage loans to buy a home. For example, an 80/20 loan is a pair of loans where the first loan covers 80% of the purchase price, and the second covers the remaining 20%. The mortgage securing the smaller amount will be recorded after the larger mortgage and is known as a "second mortgage."
In some cases, the homeowner might also take out another mortgage or a home equity line of credit (HELOC) later on down the line. That mortgage would then be called a "third mortgage."
If you get sued in court for a sum of money and lose the case, the prevailing party will get a judgment. That party may then file a judgment lien on your property. Often, judgment liens are lower in priority than other types of liens, like mortgages.
Almost all HOAs and COAs have the power to place a lien on your property if you become delinquent in paying the fees or any special assessments. In most cases, the lien will automatically attach to your property. The lien will typically attach to the home as of:
However, the CC&Rs will often contain a provision stating that any association lien is subordinate to a first mortgage, even if the mortgage was recorded after the association's lien was perfected. State law might also determine the priority of an HOA or COA lien. So, association liens are often junior to first-mortgage liens.
But a "super lien" is a category of lien that, under a state statute, is given a higher priority than other types of liens. When it comes to HOA and COA liens, a super lien refers to that portion of the lien that's given higher priority than even the first-mortgage holder, placing the HOA or COA's interest in front of a first mortgage.
A mechanic’s lien is recorded in the county recorder’s office by an unpaid contractor, subcontractor, laborer, or material provider. A mechanic's lien sometimes gets priority over other types of previously recorded liens.
The priority of liens establishes who gets paid first following a foreclosure and often determines whether or not a lienholder will get paid at all. A first lien has a higher priority than other liens and gets first crack at the sale proceeds. If any sale proceeds are left after the first lien is paid in full, the excess proceeds go to the second lien—like a second-mortgage lender or judgment creditor—until that lien is paid off, and so on. A lien with a low priority might get nothing from a foreclosure sale.
Example. Say you owe $300,000 on your first mortgage. You also owe $30,000 on a second mortgage that you took out a few months after the first mortgage. In addition, a credit card company got a $5,000 judgment lien on your house after it sued you and won. (The creditor recorded the judgment lien after the second mortgage was recorded.) You fall behind in mortgage payments and the first-mortgage holder forecloses. The home sells for $320,000 at a foreclosure sale. The first-mortgage lender will get paid off in full ($300,000), which leaves $20,000 to distribute. The second-mortgage lender will get that $20,000. The judgment creditor gets nothing, and its lien is eliminated in the foreclosure.
Be aware, though, that even though the liens are gone, you might still be on the hook for the $10,000 you still owe on the second mortgage and the $5,000 you owe the credit card company. Depending on the laws in the state where you live, the second-mortgage lender might be able to sue you to recover the $10,000 that you still owe, which is called a deficiency. Also, while the credit card company won’t get any money from the foreclosure, it could still try to collect the judgment debt from you in other ways, like by freezing your bank accounts, garnishing your wages, or placing liens on other property you own.
If you're facing a foreclosure and have questions about what happens to the liens that are on your home, consider talking to a local attorney.