- A mortgage and a construction lien both give someone a claim against the same property, but they work differently.
- Rather than one simple rule, priority between a lien and a mortgage tends to turn on factors including: - Timing — when the mortgage was registered relative to when construction started…
- A lender is about to advance mortgage funds on a property where construction is underway or recently finished, and wants to know whether existing or potential liens could rank ahead of…
When a construction lien is registered against a property that already carries a mortgage — or a new mortgage is about to close on a property with liens on title — everyone asks the same question: who gets paid first if there isn't enough money to go around? The honest answer is that Ontario's construction lien priority rules are genuinely complicated, and the outcome depends heavily on timing and the specific facts of the mortgage and the lien.
This article explains the concepts behind construction lien priority vs. mortgage claims, the factors that generally matter, and why getting a lawyer involved early — before closing, not after — makes the biggest difference.
Two Very Different Kinds of Claim
A mortgage and a construction lien both give someone a claim against the same property, but they work differently.
| Mortgage | Construction lien | |
|---|---|---|
| What it secures | Money lent to the property owner (or a prior owner) | Unpaid amounts for services or materials supplied to an improvement |
| Who holds it | A lender | A contractor, subcontractor, worker, supplier, or design professional |
| How it's created | A registered agreement, usually tied to a loan advance | Registered unilaterally by the unpaid party, without the owner's agreement |
| Governing framework | Standard mortgage and land registration law | Ontario's Construction Act |
Because both can attach to the same property at overlapping points in time, Ontario law has to decide which claim gets paid first out of limited sale or refinancing proceeds — and that's where it gets complicated.
What Generally Affects Priority
Rather than one simple rule, priority between a lien and a mortgage tends to turn on factors including:
- Timing — when the mortgage was registered relative to when construction started and when lien rights arose on the project
- The nature of the mortgage advance — whether funds were advanced in a lump sum before work began, or in stages as construction progressed, since staged "building mortgage" arrangements are treated differently than a simple purchase mortgage
- Whether the lender had notice of ongoing construction, which can affect the analysis in some circumstances
- The statutory holdback — separately from priority, the Construction Act requires anyone paying for an improvement to hold back a percentage of what's owed until the lien period expires, which affects how much money is even available to satisfy either claim
Because these factors interact, there's no shortcut formula that reliably tells you "the mortgage wins" or "the lien wins" without looking at the actual dates, advances, and registrations involved.
Why This Matters in Practice
This issue tends to come up in a few recurring situations:
- A lender is about to advance mortgage funds on a property where construction is underway or recently finished, and wants to know whether existing or potential liens could rank ahead of the new mortgage.
- A property owner is selling or refinancing a property with a lien on title, and the lender's or buyer's lawyer needs the priority question sorted out — or the lien discharged — before closing.
- A contractor is deciding whether registering a lien is worthwhile on a heavily mortgaged property, since a lien that ranks behind a large mortgage may recover little or nothing if the property is sold.
In each case, a title search and a review of the mortgage advance history and construction timeline are usually the starting point for figuring out where things actually stand.
Frequently asked questions
Does a construction lien always come ahead of a mortgage?
No. There's no blanket rule that liens automatically outrank mortgages or vice versa — priority depends on the specific timing and structure of the mortgage advances relative to the construction and the lien. This is exactly the kind of question that needs a lawyer to review the actual documents and dates.
If I'm a lender, how do I protect myself against liens on a construction project?
Lenders financing construction typically manage lien exposure through staged advances, holdback retention, and careful monitoring of the project, among other protections. The right combination depends on the size and structure of the project — a construction or real estate lawyer can help set this up before funds are advanced.
Can a lien stop my mortgage from closing?
A lien on title can complicate or delay a closing, since lenders and buyers' lawyers generally want liens dealt with — discharged, paid out, or otherwise resolved — before funds are advanced. It doesn't automatically mean the deal is dead, but it does need to be addressed first.
What happens if the property is sold and there isn't enough money for everyone?
When sale proceeds can't cover every claim against a property, the available funds are distributed according to Ontario's priority rules, which can involve claims being paid in a particular order or shared among claimants depending on their category. This is a fact-specific process, often resolved through the court overseeing the lien action.
This is a litigation question
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