The short answer
On a construction loan, the biggest threat to your priority is often not another lender but the people building the project. Canada protects contractors mainly through mandatory holdbacks. Many US states protect them by letting liens "relate back" to the start of work. A lender who funds without understanding the local rule can find unpaid trades ahead of its mortgage.
Canada: the holdback model
Canadian provinces require the owner to hold back a percentage of each payment so that unpaid subcontractors have a fund to claim against.
Ontario. The Construction Act, R.S.O. 1990, c. C.30, requires a 10% holdback on each payment under a contract or subcontract (s. 22). A lien generally must be preserved within 60 days of the relevant triggering event, such as substantial completion or the last supply of services or materials. The 2018 and 2019 reforms also introduced prompt payment and adjudication.
Section 78 of the Ontario Act sets the priority rules for mortgages. In broad terms, a building mortgage (one taken to finance the improvement) ranks behind liens to the extent of any deficiency in the holdbacks the owner was required to retain. A prior mortgage registered before the first lien arose generally keeps priority for amounts advanced before liens are registered or notice is received, again subject to holdback deficiencies. Each advance under a construction loan should therefore be preceded by a subsearch for registered liens and confirmation that holdbacks are being kept.
British Columbia. The Builders Lien Act, S.B.C. 1997, c. 45, also requires a 10% holdback (s. 4), which must be held in a holdback account in many cases. A claim of lien must generally be filed within 45 days after a certificate of completion, or after completion, abandonment or termination of the head contract or improvement.
Alberta. The Prompt Payment and Construction Lien Act, R.S.A. 2000, c. P-26.4, combines a 10% holdback with prompt payment rules. Lien registration deadlines are generally 60 days, and 90 days for concrete suppliers on certain projects.
United States: relation back and recording
US mechanics' lien law varies widely, but a common thread is that a lien can take priority from a date earlier than its filing.
| State | When a lien's priority attaches | What it means for lenders | Authority |
|---|---|---|---|
| Florida | Recording of the notice of commencement | A mortgage recorded before the notice of commencement generally has priority over later liens | Fla. Stat. ch. 713, including § 713.07 |
| California | Commencement of work on the project | Liens have priority over encumbrances recorded after work starts, and over unrecorded ones | Cal. Civ. Code § 8450 |
| Texas | Inception of the lien, generally commencement of construction | Record the deed of trust before any visible work or delivery of materials | Tex. Prop. Code ch. 53, including § 53.124 |
| New York | Filing; but a building loan contract must be filed | A lender that fails to file the building loan contract can be subordinated to later liens | N.Y. Lien Law § 22 |
The "no work before recording" rule. In relation-back states, lenders typically require a site inspection, dated photographs and a no-work affidavit at closing to prove that nothing started before the mortgage was recorded.
New York's trap. Lien Law § 22 requires a building loan contract, with a sworn statement of the borrower's net proceeds, to be filed with the county clerk. A lender that fails to comply risks having its mortgage subordinated to later mechanics' liens. Canadian lenders unfamiliar with this filing should get New York counsel involved before the first draw.
Controlling the draw process
Cross-border lenders often rely on local inspectors and quantity surveyors. A sound draw process works the same way on both sides of the border:
- Cost-to-complete review. Confirm the remaining budget covers the remaining work before every advance.
- Title update. Run a subsearch or title date-down before each advance to catch new liens.
- Lien waivers or statutory declarations. In the US, collect conditional and unconditional lien waivers from the contractor and major trades; California prescribes statutory forms (Civ. Code §§ 8132–8138). In Canada, take statutory declarations of payment and confirm holdback status.
- Holdback compliance. In Canada, confirm the owner is retaining the statutory holdback, and fund it to a holdback or trust account where possible.
- Title insurance endorsements. In the US, ask for pending disbursement coverage or mechanics' lien endorsements where available.
Tariffs and cost overruns
Construction costs remain volatile, with new US tariffs and Canadian counter-measures in place in 2026 (Blog 11). Lenders should require larger contingencies and an equity cure mechanism in the loan agreement so cost overruns are funded by the borrower before more loan dollars go in.
Frequently asked questions
Frequently asked questions
Can a construction lien take priority over a mortgage?
Yes. In Ontario, liens can rank ahead of a building mortgage to the extent of holdback deficiencies. In many US states, liens relate back to the start of work and can beat a later-recorded mortgage.
What is the construction holdback in Canada?
Generally 10% of each payment in Ontario, BC and Alberta, retained to protect subcontractors and suppliers.
Why must work not start before a US construction mortgage is recorded?
In relation-back states such as California and Texas, a lien's priority can date to the start of work, so earlier work can put liens ahead of the mortgage.
What is a building loan contract in New York?
A contract for a construction loan that must be filed under Lien Law § 22; failing to file can subordinate the lender's mortgage.
This content is general information for industry professionals and is not legal, tax or financial advice. Laws change and apply differently to each transaction; obtain advice from qualified counsel in each relevant jurisdiction. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com