Lien positions and Title insurances
Hey Tyler, thanks for everything you do! I do have a question about how lien position works and how title insurance relate to it. So from my knowledge, Super liens will always go first, followed up by mechanical liens if there is any. Then a mortgage lien will come in effect and take care of those liens so it will be first followed by subordinate liens like seller finance loans. When and how does title insurance come into play here and how does the voluntary and involuntary title insurance play out differently? Also if my understanding of lien position correct?
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Answers
Thanks for writing in, Jason. Your understanding of lien priority is mostly correct, but here’s a clearer breakdown.
**Liens are generally ranked by priority**, which determines who gets paid first if the property is foreclosed or sold to satisfy debts. The order usually goes like this:
**Super Liens** – Certain liens, like property taxes or HOA “super priority” liens, can jump ahead of even a mortgage. These are considered statutory or “super” because they’re granted special priority by law.
**Mechanic’s Liens** – These are for contractors or tradesmen who performed work on the property and weren’t paid. Depending on the state, they may take priority over later-recorded mortgages if properly filed.
**Mortgage Liens** – The first mortgage recorded usually has priority over any later (junior) liens.
**Subordinate Liens** – These include second mortgages, home equity loans, or seller-financed notes. They get paid only after the first mortgage is satisfied.
Title insurance comes into play to protect against losses caused by defects or undisclosed liens that affect the priority of the insured interest. For example, if a prior lien wasn’t discovered during the title search and ends up taking priority over your mortgage, title insurance would cover that loss (for the lender, and optionally for the owner if they have an owner’s policy).
There isn’t really **“voluntary” vs. “involuntary”** title insurance. That distinction applies to liens, not insurance. Voluntary liens are those the owner agrees to, like a mortgage. Involuntary liens are imposed by law, like tax liens or judgments. Title insurance covers both types as long as they existed before the policy was issued and weren’t properly disclosed.
In short, title insurance doesn’t change lien priority. Title insurance simply protects the insured parties if a mistake in determining that priority later causes financial loss.
**Liens are generally ranked by priority**, which determines who gets paid first if the property is foreclosed or sold to satisfy debts. The order usually goes like this:
**Super Liens** – Certain liens, like property taxes or HOA “super priority” liens, can jump ahead of even a mortgage. These are considered statutory or “super” because they’re granted special priority by law.
**Mechanic’s Liens** – These are for contractors or tradesmen who performed work on the property and weren’t paid. Depending on the state, they may take priority over later-recorded mortgages if properly filed.
**Mortgage Liens** – The first mortgage recorded usually has priority over any later (junior) liens.
**Subordinate Liens** – These include second mortgages, home equity loans, or seller-financed notes. They get paid only after the first mortgage is satisfied.
Title insurance comes into play to protect against losses caused by defects or undisclosed liens that affect the priority of the insured interest. For example, if a prior lien wasn’t discovered during the title search and ends up taking priority over your mortgage, title insurance would cover that loss (for the lender, and optionally for the owner if they have an owner’s policy).
There isn’t really **“voluntary” vs. “involuntary”** title insurance. That distinction applies to liens, not insurance. Voluntary liens are those the owner agrees to, like a mortgage. Involuntary liens are imposed by law, like tax liens or judgments. Title insurance covers both types as long as they existed before the policy was issued and weren’t properly disclosed.
In short, title insurance doesn’t change lien priority. Title insurance simply protects the insured parties if a mistake in determining that priority later causes financial loss.
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