Quick Answer
The order in which liens are paid depends on applicable law, the type of lien, recording dates, contractual rights, and special statutory priority rules. There is no single rule that applies to every situation.
When a property is sold and the proceeds are distributed, the order of payment matters. Understanding how lien priority works helps sellers, buyers, and real estate professionals anticipate how funds will be distributed.
"First in Time, First in Right" Is a Starting Concept, Not Universal
The traditional common law rule is that liens are prioritized based on the order they were recorded: the first lien recorded gets paid first. However, this is only a starting point and is far from universal. Many exceptions and overriding rules exist.
Priority can be affected by many factors:
- Subordination agreements: A senior lienholder may agree to subordinate its priority to a later lien.
- Refinancing: A refinance can change priority relationships between creditors.
- Tax laws: Federal and state tax liens have their own statutory priority rules.
- HOA statutes: Many states give HOA liens special priority for a limited amount.
- Purchase-money rules: Purchase-money mortgages may have priority over certain other liens regardless of recording order.
- Foreclosure: A foreclosure can extinguish junior liens.
- Bankruptcy: Bankruptcy can alter lien priority and enforcement.
For a deeper discussion of how priority is determined, see our article on lien priority explained.
FAQs
Does the first mortgage always get paid first?
Generally yes, but there are exceptions. Property tax liens often have priority over even a first mortgage. Some mechanic's liens and HOA liens may also take priority under certain conditions. The specific facts and applicable law determine the final priority.
Can a seller choose which lien gets paid first?
No. Lien priority is determined by law and by agreements between creditors, not by the seller's preference. The settlement agent must follow the applicable priority rules when disbursing funds.
What happens if there is not enough money to pay all liens?
Liens are paid in order of priority. The highest-priority liens are paid first. If insufficient funds remain, lower-priority liens may not be paid and will generally remain attached to the property unless released. The seller may still owe those debts personally.