Schorr Law Blog

Liens and Priorities in California

Updated on December 15, 2022

This is the first part of a two-part series on liens and priorities.  This first part is an introduction to liens and priorities and the second part will discuss a case decided recently on lien priority and simultaneous recordings.

Lien Defined

When purchasing property in California, purchasers generally obtain a loan that is secured by a deed of trust.  A deed of trust is considered a lien.  California Civil Code Section 2872 defines a lien as “a charge imposed in some mode other than by a transfer in trust upon specific property by which it is made security for the performance of an act.”  In the example above, the deed of trust secures the homeowner’s obligation to pay the loan by taking an interest in the property.  If the homeowner defaults on the loan, the lien holder can foreclose on the property.

Liens are created in two ways: (1) by operation of law, and (2) by contract (Civ. Code, § 2881). The deed of trust is an example of a lien created by contract. (Monterey S. P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal. 3d 454, 460.)

ALSO READ  What is the Difference Between Real Property and Personal Property?

Lien Priority

California adheres to a “first in time, first in right” system of lien priorities, under which a conveyance recorded first generally has priority over any later-recorded conveyance.  (See Civ. Code, §§ 1214, 2897; First Bank v. East West Bank (2011) 199 Cal. App. 4th 1309, 1313.)  This system of priorities is also known as the “race-notice” theory.  To quote the statute, priority is given to “a purchaser or incumbrancer who in good faith and for a valuable consideration acquires a title or lien by an instrument that is first duly recorded.” (Cal. Civ. Code § 1107.)  Good faith requires the absence of actual or constructive notice of the prior interest. (See Gribble v Mauerhan (1961) 188 Cal. App. 2d 221, 227.)

To properly record an instrument, the instrument must be duly acknowledged or proved and certified, and be deposited in the Recorder’s office, with the proper officer, for record.  (Cal. Civ. Code § 1170.)

The above rule on priority does not always apply.  The “explicit caveat in applying the “first in time, first in right” rule . . . is that all other things must be equal.” (DMC, Inc. v. Downey Savings & Loan Assn (2002) 99 Cal. App. 4th 190, 195-96.)  A purchase-money mortgage is one of the exceptions.  Once the existence of a purchase-money mortgage is established, the purchase-money lien has priority over all other liens on real property.  (Id.)

ALSO READ  Real Estate Investment Trusts (REITs)

Our real estate attorneys at Schorr Law have a great deal of experience with real estate matters and disputes, including liens and priorities, the recording of liens, as well as the removal of them. To see if you qualify for a free 30-minute consultation, contact us today!

By: Randy Aguirre, Esq.