#42: Mechanic’s Lienor vs. Mortgagee: Who Has Priority?
Sorting out the “priority” of creditor claims against a piece of real estate―the pecking order when the asset is sold―can occasionally be a thorny task. Whether the creditor’s claim is secured with the owner’s consent (i.e., mortgages) or without it (e.g., court-ordered attachments, tax liens, condominium assessment liens, commercial real estate broker liens), in all cases some instrument must be recorded at the registry of deeds―and it would be a simple matter for the law to declare that in all cases the order of recording establishes priority. That is indeed the general rule; see RSA 477:3-a, providing that any “instrument which affects title to any interest in real estate” must be recorded and “shall not be effective as against bona fide purchasers for value until so recorded.” But there are some exceptions which allow a later-recorded interest to achieve priority over an earlier-recorded one.
In determining whether mechanic’s liens are such an exception, RSA 447:9 is the starting point: “The lien created by RSA 447:2-7, inclusive, shall continue for 120 days after the services are performed, or the materials, supplies or other things are furnished, unless payment therefor is previously made, and shall take precedence of all prior claims except liens on account of taxes.” On first blush, this appears to declare that a mechanic’s lien always trumps an earlier-recorded mortgage. But appearances can be deceiving.
Consider RSA 479:3, which provides: “Subject to the provisions on priority in RSA 447:12-a, a recorded mortgage takes priority as of the date of its recording as to advances or obligations thereafter made or incurred that do not exceed the maximum amount stated in the mortgage.” With exceptions found in RSA 447:12-a (I’ll deal with that statute in a moment), RSA 479:3 thus allows a mortgage recorded on Day 1 to retain whatever priority it may have over any interest recorded on Day 2 even as to mortgage advances made on Day 3. Standing alone, this says nothing about relative priorities between the Day 1 and Day 2 recordings. But Earnshaw v. First Federal Savings and Loan Association, 109 N.H. 283 (1969), does. Construing an earlier version of RSA 479:3 (before enactment of RSA 447:12-a), the Court ruled that a construction loan mortgage had priority over a later-recorded mechanic's lien, even as to advances made after the lien attached.
With a few exceptions, RSA 447:12-a provides that a mechanic’s lien “shall have precedence and priority over any construction mortgage.” Before concluding that this is just a redundancy given RSA 447:9, it would be well to consider our Supreme Court’s statement that “without RSA 447:12-a (Supp. 1975) prior law would have given the construction mortgage of defendant priority over Sullivan's mechanic's lien,” L. M. Sullivan Co., Inc. v. Essex Broadway Savings Bank, 117 N.H. 985 (1977). Even more telling is Lewis v. Shawmut Bank, N.A., 139 N.H. 50, 52 (1994), which allowed a mortgage to trump a mechanic’s lien as to the portion of the mortgage loan that was not for construction purposes: “The statute only provides priority over prior mortgages based on construction loans. Therefore, if the defendant's loan is regarded as a ‘mixed’ loan (i.e., its purpose is to finance not only construction, but also land acquisition or discharge of mortgages on land), then, under the race-notice rule of priority, the defendant would enjoy priority with respect to non-construction disbursements.”
As I said, appearances can be deceiving. RSA 447:9’s “shall take precedence of all prior claims” does not include prior mortgages. Priority as between a mechanic’s lien and a construction mortgage is determined by RSA 447:12-a. But priority as between a mechanic’s lien and a conventional mortgage is determined by the general first-to-file rule. If RSA 447:9 was the Legislature’s effort to give mechanic’s liens priority over earlier mortgages, it forgot about RSA 477:3-a, thus leaving to the courts the task of resolving inconsistent statutes. And the courts have come down in favor of the mortgage holder―who would be no worse off if priority were given to a subsequent mechanic’s lien for labor and materials that added value to the real estate equal to the amount of the lien. A rising tide lifts all boats.