Mechanics Lien Priority: Contractor vs. Lender - Part 1
When both a mortgage lender and a mechanics lien holder foreclose against the same piece of property, who gets priority to the money paid at the foreclosure sale? One recent Illinois judicial decision, LaSalle Bank, N.A. v. Cypress Creek 1, LP, says they both do, depending on what part of the property you're talking about:
- The lender's mortgage gets priority on the value of the property before improvement by designers and contractors
- The mechanics lien gets priority on value added to the property by improvements from designers and contractors
- Then, to the extent the lender pays off a designer or conractor who holds a properly perfected mechanics lien (each a "Payee"), the lender succeeds by subrogation to the priority of the Payee's mechanics lien. By paying a Payee, the lender essentially buys the Payee's mechanics lien. But that works only to the extent the lender pays off a Payee who holds a properly perfected mechanics lien. The lender doesn't succeed, and doesn't get priority, just because they pay money to a designer or builder who provided lienable work, but didn't perfect a mechanics lien to secure payment
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