Mechanic's Lien Priority (Part III)
A very common question that I am often asked is “What is mechanic’s lien priority?” For contractors as well as real estate owners, this term is of paramount importance and the answer why may surprise you. As is generally the case, the priority of liens is typically determined by the timing of their filing. For example, the first lien filed with the Recorder of Deeds will be the first mortgage, which carries with it first priority as a creditor to any proceeds from a sale or foreclosure of the property. If a second mortgage is filed with the Recorder of Deeds at a later time, it will be the second mortgage. If and when the property is foreclosed upon, the second mortgage will not receive any payments on their amount due until the first mortgage is paid in full.
Of the few exceptions to the “first in time, first in right” rule, one is county real estate tax liens which have absolute priority. A second exception is that the District of Columbia Mechanic’s Lien is considered “inchoate,” meaning it relates back to the time the labor or material is supplied to the property. As such, any judgment lien or mortgage lien recorded following the inception of the work on the property will take a lower priority to the Mechanic’s Lien.
In general terms, the District of Columbia Mechanic’s Lien carries priority over all other liens and mortgages once work has commenced. It does not, however, take priority over construction loan advances created following the filing of the Notice of Mechanic’s Lien. The Mechanic’s Lien’s priority only presupposes post-notice advances, despite a construction loan recorded before the Notice. It should also be noted that a District of Columbia Mechanic’s Lien does not carry priority over a mortgage used to pay the full purchase price of the property.
When the related improvement also includes subcontractors, it is important to know where the subcontractor’s Mechanic’s Lien would lay in the line of priority. Subcontractors take priority over general contractors. When the proceeds from payments on the liens of subcontractors are not sufficient to pay the claims in full, they are distributed on a pro rata basis.
For more information regarding filing a Mechanic’s Lien in the District of Columbia Contact Antonoplos & Associates, 202-803-5676.