In most states, contractors and suppliers can file “Mechanics Liens,” whereby they acquire a privilege against the construction jobsite’s property. The liens usually work like a mortgage on the property, such that it must be satisfied before a property is sold, transferred or refinanced.
While liens act a lot like mortgages, they certainly are not identical to mortgage instruments.
First, in most states, mechanics liens themselves expire. Most states require that the contractor file a lawsuit to “enforce” or “foreclose” on the lien within a certain time period (sometimes short), to extend the life and effectiveness of a lien. Here are some example timeframes:
In Louisiana, liens must be enforced within 1 year from filing. In Washington, lien foreclosure is due within 8 months of filing. In California, you must foreclose within just 90 days of filing!
Second, depending on the state, liens are given more or less “priority.” Lien priority effects the order the instruments are paid in the event of a property sale or foreclosure. In other words, if a property is foreclosed upon but sold for an amount less then the sum of all liens, and there are two mortgages and a mechanics lien on record, who gets paid and who doesn’t?
The answer to this question depends on your state. In Louisiana and Washington, liens take a junior priority to mortgages and similar instruments. In other states, however, the rules are or, depending on circumstances, can be different. In Virginia, mechanics liens have priority over construction loan mortgages. In Minnesota, depending on when the respective instruments are filed, a mechanics lien can take priority over mortgage-type instruments.