General contractors, subcontractors and materials and equipment suppliers in Missouri and around the country sometimes file mechanics liens to ensure that their outstanding invoices are paid. Mechanics liens are legal claims filed against residential and commercial properties that are recorded on titles and deeds. When a property is sold, all of its encumbrances and liens must be satisfied before ownership can be transferred. When there is not enough money available to satisfy all of the interested parties, liens are prioritized to determine who gets paid.
Lien priority
Mechanics liens are prioritized according to age. Most states have a first to file rule that bases precedence on when mechanics lien paperwork was submitted. This means that creditors who do not submit the necessary documents until a project runs into financial difficulties will be at a disadvantage. In contrast, Missouri has a first spade rule that prioritizes mechanics liens based on the date work was performed or goods were delivered. However, liens must usually be filed no later than six months after work has been completed.
Mortgages
First and second mortgage holders are usually paid first when a project runs into financial difficulties because lenders are rarely willing to make loans secured by real estate unless their liens have priority. In Missouri, the first spade rule would give a construction lien a higher priority than a mortgage if work began or goods were delivered before to the mortgage documents were signed. To file a mechanics lien in Missouri, a creditor must complete the necessary paperwork, have their signature verified by a notary and submit the signed and notarized documents to a circuit court in the country where the project is physically located.
A fairer system
In most states, lien priority is based on when documents were submitted and recorded rather than when work was performed or goods were supplied. When construction projects in these states are beset by financial problems, contractors, subcontractors, suppliers and vendors that fail to act quickly may not be paid. Missouri bases lien priority on when work is performed or goods are delivered, which is a much fairer system.