Priority of Rights in Rem

Real Estate and Property

Prepared by: Constantinople

Several rights over the same property do not necessarily operate with equal priority. Their creation dates, registration order and, for certain rights, the ranking system are assessed together.

How Is Priority Determined?

The registration date and journal order of rights in rem generally matter. There are, however, special arrangements such as mortgage ranks. The first entry appearing in the register does not invariably extinguish every later right. Statutory priorities, agreements and the nature of the right are examined separately.

The Mortgage Ranking System

Mortgage security is linked to the rank stated on registration. Cancellation of a mortgage in an earlier rank does not mean that a later creditor automatically moves into the vacant rank. The requirements and annotation of an arrangement granting advancement into a vacant rank are assessed separately. The registered order must also be read together with the claim amount and the interest covered.

Forced Sale and Transaction Risks

The priority of rights in rem may matter in distributing sale proceeds; enforcement remedies concerning the distribution list are subject to separate procedures. The relationship between an earlier security right and a later easement also requires specific examination. Looking only at the total mortgage amount before a purchase or financing transaction does not explain the priority issue.

Documents to Prepare for an Initial Review

Send each document in its entirety as held by you, rather than only its first page or a screenshot. We determine, according to the file, what authority is needed to obtain missing official records. The following records are helpful at the outset:

• Complete encumbrance record
• Journal and registration dates
• Mortgage ranks and amounts
• Agreements changing priority
• Enforcement or sale file

Why Do the Particular Circumstances Matter?

For example, a transaction should not proceed on the assumption that a second-ranking mortgage automatically becomes first-ranking when the first is paid off. The legal structure of the entry, any vacant-rank agreement and the particular order of recovery are examined first.