Mechanic’s Liens and Construction Loans: Who Has Priority?
Dec. 1, 2025
Starting a construction project—whether it’s a home build, renovation, or commercial development—often involves multiple parties and significant financial investment. Contractors, subcontractors, lenders, and property owners all depend on clear agreements and timely payments.
When funds run short or payments stall, disputes can arise about who gets paid first. Mechanic’s liens and construction loans both create legal claims to the same property, making priority a critical issue that can affect everyone involved.
At the Law Offices of C. Melody Davalos, PLLC, based in Raleigh, North Carolina, we assist clients in understanding and resolving legal conflicts related to property, contracts, and construction finance.
Led by attorney Melody Davalos, J.D., we represent clients across Nags Head, Wake County, Johnston County, Franklin County, and Durham County. Our goal is to provide clarity and confidence through practical legal guidance that protects your financial and ownership interests. Contact us today to schedule a consultation.
Grasping the Basics of Mechanics’ Liens
A mechanic’s lien is a legal claim against property filed by a contractor, subcontractor, or supplier who has provided labor or materials but hasn’t received payment. It effectively turns the property into collateral for the unpaid debt. In North Carolina, mechanic’s liens are governed by specific statutes that outline filing deadlines, notice requirements, and enforcement procedures.
For contractors and subcontractors, filing a lien helps secure payment. For property owners and lenders, however, it can create a cloud on the title that delays sales, refinancing, or closing of construction loans. Understanding how and when these liens take effect is crucial to preventing costly legal complications.
How Construction Loans Work in Practice
Construction loans differ from traditional mortgages because they’re designed to fund building projects as they progress. Instead of providing a lump sum, lenders release money in phases, or “draws,” based on completed milestones. This approach helps track project progress and reduce risk—but it also means multiple claims may arise at different stages.
Lenders typically secure their interest in the property by filing a deed of trust before construction begins. That recorded interest gives them priority over later claims, but mechanic’s liens can sometimes challenge that order. When construction funds run dry or payments stop flowing, lienholders and lenders may each argue that their claim should come first.
Why Priority Matters in Construction Disputes
Priority determines who gets paid first if the property must be sold or foreclosed to satisfy debts. For contractors and suppliers, having lien priority can mean the difference between full payment and complete loss. For lenders, maintaining priority is vital to protect the loan balance and investment security.
In many cases, the timing of filings plays a key role. A construction lender who records its deed of trust before visible work begins typically holds priority. However, if contractors or suppliers begin work before the lender’s lien is recorded, they may claim precedence for their mechanic’s lien.
Protecting Yourself as a Property Owner
Property owners are often caught in the middle of these financial disputes. A mechanic’s lien can freeze transactions or lead to double payments—once to the contractor and again to clear the lien. Fortunately, there are steps owners can take to reduce the risk.
Track payments carefully: Maintain documentation for every payment made, including receipts and dates.
Require lien waivers: Before paying contractors or subcontractors, request signed lien waivers confirming they’ve been paid for completed work.
Monitor loan disbursements: Coordinate with your lender to confirm that funds are released only after verified progress.
Address disputes promptly: If a lien is filed, act quickly to contest or resolve it before it escalates to litigation.
By maintaining clear communication with contractors and lenders, property owners can help prevent misunderstandings and reduce the chance of overlapping claims. Early attention to documentation and compliance with lien laws often prevents the need for court intervention later.
Safeguarding Payment Rights as a Contractor or Subcontractor
For contractors and subcontractors, mechanic’s liens represent a vital legal protection. However, strict statutory deadlines and procedural requirements determine whether those rights remain valid. Missing a filing date or using incorrect notice language can invalidate a claim. To protect your payment rights:
Keep detailed records: Document all labor, materials, and project milestones.
Send preliminary notices: Notify the property owner and lender early about your involvement in the project.
File liens on time: Follow North Carolina’s statutory deadlines for filing and perfecting liens.
Seek resolution before litigation: Open communication with property owners and lenders often leads to quicker, less costly solutions.
Contractors who understand their lien rights—and act on them correctly—are better positioned to recover what they’re owed without jeopardizing professional relationships or project timelines.
Managing Construction Loans to Avoid Conflicts
Construction loans involve multiple stakeholders, and miscommunication can easily cause payment disputes. Lenders have a vested interest in verifying that loan funds are used as intended, while contractors depend on consistent draws to maintain progress. A breakdown at any point can result in unpaid invoices or halted projects.
Best practices for managing construction loans include:
Clear contracts: Define payment terms, milestones, and approval procedures in writing before starting work.
Regular inspections: Lenders should conduct site visits before releasing funds to confirm the project's progress.
Prompt communication: Immediate updates about changes or delays prevent misunderstandings.
Joint checks: Issuing checks made payable to both the contractor and subcontractor helps verify proper fund distribution.
When all parties maintain transparency, construction loans proceed more smoothly—and the risk of competing lien claims is minimized.
Handling Priority Disputes When They Arise
Even with the best efforts, disputes over lien priority can still occur. These conflicts often depend on technical details such as recording dates, compliance with statutory notice requirements, and evidence of when visible work began. Courts scrutinize these details to decide which claim takes precedence.
If you’re involved in such a dispute, seeking legal counsel early is essential. An experienced construction law attorney who’s familiar with North Carolina’s lien statutes can review timelines, filing records, and payment documentation to determine your strongest position. Mediation or negotiated settlements may resolve the issue faster and at lower cost than litigation.
The Impact of Timing and Filing Accuracy
Filing mechanics play a decisive role in lien priority. A contractor’s lien that’s filed correctly and on time can outrank even large financial interests, while one that’s incomplete or late may be void. Similarly, a lender who records a deed of trust before any work begins generally maintains priority—but not if pre-construction activity can be proven.
Accuracy also affects lien removal. Once payment disputes are resolved, lien releases must be filed in a timely manner to clear title and restore property marketability. Failure to remove expired or invalid liens can delay refinancing or sale long after the project ends.
Practical Tips for Avoiding Priority Conflicts
Preventing lien and loan priority disputes starts with proactive organization. Whether you’re a property owner, contractor, or lender, clarity at the outset of the project saves time and money later.
Establish a paper trail: Keep contracts, invoices, receipts, and communication logs accessible and organized.
Verify all filings: Confirm that deeds of trust, lien claims, and waivers are recorded properly with the appropriate county office.
Set payment protocols: Define how and when funds will be released and what proof of completion is required.
Consult professionals: Early advice from legal and financial experts can help prevent costly disputes.
Taking these steps helps each party maintain transparency and protect their financial interests throughout construction.
Resolving Mechanic’s Lien and Loan Disputes
When conflicts over priority escalate, formal resolution may be required through court action. In such cases, evidence of compliance with lien statutes and loan terms becomes critical. Courts will evaluate whose rights were established first, whose filings were valid, and whether procedural rules were followed.
While litigation is sometimes unavoidable, many disputes can be resolved through negotiation or structured settlement. Legal guidance helps identify opportunities for compromise and preserves relationships among contractors, lenders, and property owners.
Contact a Knowledgeable Construction Law Attorney
Mechanic’s liens and construction loan priorities are more than just technical legal matters—they directly affect payment security, project completion, and long-term financial outcomes.
Whether you’re a property owner facing a lien filing, a contractor seeking payment, or a lender protecting your investment, timely action and clear documentation are key to resolving disputes effectively.
At the Law Offices of C. Melody Davalos, PLLC, we help clients throughout Raleigh, Nags Head, Wake County, Johnston County, Franklin County, and Durham County understand their rights and pursue fair outcomes in construction and property law matters. If you’re dealing with a lien or loan dispute, reach out to us today for informed guidance and steadfast legal support.