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What type of Liens take Priority?
A lien is a claim or legal rights to claim assets; it is, more often than not, used as collateral to rectify debt.
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What is Lien Priority?
Seeing that you now know what a lien is, let’s move into lien priority. There are many types of liens that can be placed on a property, to include, but not limited to:
- Mechanics liens
- Deed of trust (mortgage lien)
- Second mortgages
- Judgement liens
The lien priority would then determine which lien is considered most important, or which lien takes first precedent, in the event of a foreclosure. Lien priority, as all other things American, differs per state; some states are considered ‘pure race’ states, which means that liens are put in order of priority based on the ‘first in time, first in right’ rule, though there may be exceptions to this rule (again, these exceptions differ by state and even across counties).
The ‘first in time, first in right’ rule dictates that whichever entity files a lien against the property first, they get their ‘two cents’ before every lien that was filed after theirs; they have the right to first payment in the event of a foreclosure.
What types of liens take priority?
As we discussed earlier, some states (well maybe we can say all) have exceptions.
The precedent that was set by the case ‘United States v. Kimbel Food (1979)’ would allow us to make the assumption that federal tax liens supersede, always, local tax liens, even if they were filed posterior to said local tax liens.
Besides this, first mortgages may take precedence over HOA’s (Homeowner’s Association) and COA’s (Condominium Owners Associations), in some states while in others it is the reverse. Just ensure you check your state’s laws to determine what applies to you.
North Carolina’s Lien Priority
North Carolina, the home of The Residential Buyer, is a ‘pure race’ state. This means that whichever lien is filed first, takes priority over all else, as per the ‘first in time, first in line’ rule. But we remember we told you that there may be exceptions to this ‘first in time, first in line’ rule? Well, in North Carolina, that exception is taxes. Local tax lien are given ‘super-priority’ status by this state.
If you have questions regarding what we do, go ahead and get those answered.
South Carolina’s Lien Priority
In the state of South Carolina, unlike North Carolina, bank interests had priority over tax liens.
The Residential Buyer
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