Each state is unique in the priority it affords to mechanics lien claims. In Oregon, mechanics lien claimants can have super-priority even over mortgages on lenders, or not. This depends on whether you notified the mortgagee and/or whether you filed your lien carefully enough.
Notify The Mortgagee, Get Priority
Oregon mechanics lien claims have priority over any mortgages on the property if the lien claimant has complied with O.R.S. § 87.025, Paragraph (3) of which provides:
No lien for materials or supplies shall have priority over any recorded mortgage or trust deed…unless the person furnishing the material or supplies, not later than eight days…after the date of delivery of material or supplies for which a lien may be claimed delivers to the mortgagee [a preliminary notice].
There are two things that make this very, very difficult to follow. First, the period of time to deliver the Oregon preliminary notice is just 8 days from first furnishing materials. That is, of course, very, very fast. Second, the notice must be delivered to the mortgagee and acquiring this information is sometimes difficult.
The fact is that oftentimes, and perhaps maybe most of the time, mechanics lien claimants who do not utilize a great preliminary notice service do not get this notice to the mortgagee on time. This means their mechanics lien claim will not have priority over the mortgage.
Segregate Labor and Materials On Your Lien, and Get Priority
If you read the statute carefully you’ll notice the rule only applies to a “lien for materials or supplies…” What about labor?
Oregon gives super priority to all labor liens. If you have furnished both materials and labor, however, you can only obtain the super priority for your claim if you segregate the claim into a labor and materials portion. This does not require two separate claims, it merely requires you to indicate what portion of your total mechanics lien amount is attributed to labor only.
Consider the Oregon Supreme Court’s comments in the 1971 case, Benj.. Franklin Federal Sav. & Loan Ass’n v. Hallmark, Inc.:
Or. Rev. Stat. § 87.025 does not require that notice of labor performed be given to a mortgagee in order for the lien to have priority, but where the lien does not segregate the charges for labor from the charges for materials, the entire lien becomes subordinate to the mortgage if the notice of the delivery of materials is not given.
Fellow blogger at the Ahead of Schedule Blog offers this tip to preserve your liens (at least partial) priority:
Contractors can maintain priority of their construction liens by…Carefully segregate[ing] material[s] charges from other charges (labor, equipment, etc.) in the claim of construction lien.
Does Lien Priority Even Matter?
First, you’ll be astounded at how much more powerful your lien claim is when it undermines a bank’s rights at the property. If your have priority over a bank, the bank is going to be very, very interested in getting your claim paid. This amps up the pressure placed on the owner or developer to pay your claim.
Second, it makes your security that much better, as the property is there for you to take to pay your claim, and you need not worry about whether there is more equity in the property than the mortgage so there is enough left-over to pay your claim. Your claim will come first.