<--Back to Wiki Home
Define Superior Lien in Real Estate
Superior Lien:
A superior lien is like being first in a line of people waiting to get paid back. It means that if someone owes money on their property and has to sell it, the person or company with the superior lien gets paid before anyone else. This is important because if there isn't enough money to pay everyone, those who are first in line have a better chance of getting their money back.
Example:
Let's say John bought a house and borrowed money from the bank to pay for it. He also took out a second loan to make some improvements. When John can't pay back his loans, the bank has to sell his house. The first loan from the bank is a superior lien, which means it will be paid off before the second loan, which is considered a junior lien.
"A Deep Dive for Real Estate Agents"
There are a few types of liens that you should be aware of, and understanding their priority can be helpful. Here are some common liens and their typical order of priority:
Property tax liens: These are usually considered superior liens because they are given the highest priority. Local governments impose property taxes, and if a property owner fails to pay them, the government can place a lien on the property.
Working Example: Mary failed to pay her property taxes for two years. The local government placed a property tax lien on her house. When Mary's house is sold, the proceeds will first go to the local government to satisfy the property tax lien before any other liens are paid.
Mortgage liens: These are created when a property owner takes out a mortgage to buy a property. The lender (usually a bank) places a lien on the property as collateral. Mortgage liens are typically superior to other voluntary liens, but they are subordinate to property tax liens.
Working Example: John took out a mortgage from Bank A to buy his house. Later, he took out a home equity loan from Bank B to renovate his kitchen. Both Bank A and Bank B have liens on the property. If John defaults on his loans and the house is sold, Bank A (the mortgage lienholder) will be paid before Bank B (the home equity loan lienholder).
Mechanics' and materialmen's liens: These liens are placed on a property when a contractor, subcontractor, or supplier has not been paid for work or materials provided for the property. These liens are usually subordinate to mortgage liens and property tax liens.
Working Example: Sarah hired a contractor to build an addition to her house but didn't pay the contractor in full. The contractor filed a mechanics' lien on Sarah's property. If Sarah's house is sold, the proceeds will first go to any outstanding property taxes, then to the mortgage lender, and finally to the contractor to satisfy the mechanics' lien.
In summary, knowing the priority order of liens is crucial in understanding who gets paid first when a property is sold. Property tax liens usually have the highest priority, followed by mortgage liens, and then mechanics' and materialmen's liens. Keep in mind that lien priority can vary depending on local laws and regulations, so it's essential to understand the rules in your specific area.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In a land of loans and owing sums,
A superior lien comes first, then some.
When a house is sold to pay the debt,
The superior lien gets paid, you bet.
But junior liens, they wait their turn,
Hoping there's money left to earn.
Superior liens have priority,
While junior liens wait, you see.
So remember, my friend, as debts accrue,
Superior liens are first in the queue.
Junior liens follow behind,
In the order they're assigned.