State laws protect contractors and subcontractors from nonpayment of the products or services they supply by permitting them to place a lien on the improved property. The lien appears on property title searches when recorded in the public records, and it may take precedence over a lender’s recorded lien in some situations. As a result, lenders should be aware of state-specific mechanics of lien statutes and how they can safeguard their interests.
In the majority of the states in the United States, the “first in time, first in the right” rule applies to property liens. This refers to the fact that liens are prioritized in recording them in the particular county. In other words, liens recorded first get a higher priority than those recorded later. The importance of liens will determine how the debts on loan are to be paid after foreclosing on a property. Although, it is worth noting that when a mortgage is registered before a mechanics lien, it usually takes precedence over the mechanics lien.
The “first in time, first in right” rule is governed by state-specific regulations. The “first in time, first in right” rule, for example, is rigidly enforced in New York. If a mortgage is registered before a mechanics lien, the mortgage will prioritize the mechanics lien. In North Carolina, however, regardless of when the lien was officially filed with the county, the date used to determine priority status on a mechanics lien will be the date the work began or the items were delivered.
To read more on state laws guiding lien priority, click here
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