If a mechanic’s lien claimant is not paid, there comes a time when the lien claimant must foreclose on the lien or the lien claim is extinguished. While the time period for this action varies by state, the requirement that a lien must be foreclosed or it will eventually expire does not. If a foreclosure action is completed and the property is sold to pay the creditors, it is likely that the proceeds of the sale may not completely cover the amounts owed to various parties. In this circumstance, it is the priority of the lien, or other interest, of each separate creditor that determines the order in which he will be paid. In the absence of special rules, the priority of an encumbrance is generally determined by the “first-in-time” rule. That is, the encumbrances are ranked in the order in which they attached to the property, or were perfected.
Many states employ a “legal fiction” in fixing when a mechanics lien attached to the property for purposes of determining priority; these states have decided that if the lien is properly it relates back to the start of the project. Generally in these situations all mechanic’s liens would be equal in priority because they all attached to the property on the same date, the date the project began, and the date of filing – or even the date the individual lien claimant started work on the project – is inconsequential to this determination. Idaho employs this type of system in determining priority, but adds a small wrinkle.
In Idaho, mechanics liens have priority over encumbrances that attach to the property after the mechanics liens, but when does the mechanic’s lien attach? An Idaho lien claimant can feel secure if the competing encumbrance attached to the property after work was first performed on the property by any of the trades. However, in Idaho, the mechanic’s lien claimant may have priority dating back longer. Idaho Code Sec. 45-506 sets out the standard for priority regarding mechanic’s liens, and states in part:
The liens provided for in this chapter shall be on equal footing with those liens within the same class of liens, without reference to the date of the filing of the lien claim or claims and are preferred to any lien, mortgage or other encumbrance, which may have attached subsequent to the time when the building, improvement or structure was commenced, work done, equipment, materials or fixtures were rented or leased, or materials or professional services were commenced to be furnished…
The potentially important clause in the above section is “or professional services were commenced to be furnished”. This seems to provide for the possibility that a mechanic’s lien would attach to the property on the date an architect started to draw up plans for the project – without the requirement in many states of the commencement of physical work. This could potentially extend the date on which a mechanic’s lien attached to the property far enough back to grant the mechanic’s lien priority over a construction mortgage, if the architectural plans were drawn up prior to the loan. This is just another potential way that properly filing a mechanic’s lien can protect your bottom line.