Definition
Lien priority is the order in which liens are paid from sale proceeds, determined by recording date and lien type. Earlier-recorded liens have higher priority and are paid first.
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Lien priority is critical in sales where proceeds may be insufficient to pay all liens. The first lien (typically the primary mortgage) is paid first from sale proceeds, the second lien gets remaining funds, and so on. Junior lienholders have strong incentive to approve short sales or deed in lieu arrangements when their position is at risk. Understanding lien priority helps in negotiation and planning for sales with multiple encumbrances.
Pro Tip
Understand lien priority before selling to know whose approval is needed for short sales.
Example
In a sale, the first mortgage gets paid first, then any second mortgage, then judgment liens, then taxes, in order of recording date.