Does a Mechanic Lien Supersede a Financial Lien?
- Liens represent a claim against the title to a specific piece of property. Liens can apply to houses, cars, boats or any other tangible asset. When a lien attaches to a property's title, the property owner cannot sell or otherwise transfer the asset until the lien is cleared. For example, most auto-finance companies attach a lien to a car title. If the owner tries to sell the car to a new owner, the proceeds of the sale must first pay off the outstanding debt -- thus clearing the lien -- with any leftover funds returning to the seller. Any asset may have multiple liens applied against it. The order in which they are resolved -- called "priority" -- is a function of state law.
- A mechanic's lien represents a special class of lien. It can be applied by a person who adds value to a property, such as repair person or contractor, through improvement or repair. Auto mechanics often use this type of lien against a customer who refuses to pay for repairs. After a time, the lienholder can foreclose on the asset, sell it at auction and thereby recover the funds owed to him.
If a homeowner contracts with a company to complete home improvements and the contractor subcontracts with another company but refuses to pay, the subcontractor can file a mechanics' lien against the house. Even though the homeowner was not a party to the agreement between the contractor and the subcontractor, the subcontractor's right to be paid encumbers the owner, who then becomes liable for the amount due. - A generally accepted rule is that liens are resolved in the order in which they were filed with mortgages receiving first priority as a matter of law. Therefore, if a house had a lien by the mortgage company and then a year later a credit card company attached a judgment lien, and then a year after that, a contractor filed a mechanic's lien, the mortgage company would be paid first, then the credit card company, then the contractor.
However, a mechanic's lien differs in that its priority begins from the date that the services were rendered, not to the date the lien was filed. So if the contractor filed a lien today for work performed three years ago, then it would take priority over a judgment lien recorded last year. - Some states give "super priority" to mechanic's liens. Virginia, for example, gives mechanic's liens priority against all other liens irrespective of their filing date. It also makes them immune to discharge in bankruptcy proceedings. If multiple mechanic's liens apply, then Virginia law allows them to be discharged in order of filing date.