The principle of marshaling liens, also referred to as the inverse-order-of-alienation doctrine, enables a creditor to recover their debt from a property that has been sold off in multiple parcels. The creditor can first collect from the parcel still owned by the original owner, then from the most recently sold parcel, followed by the second most recent, and so on, until the debt is fully paid. This rule ensures that creditors can receive the amount owed to them, even if the property has been divided and sold in parts.
The rule of marshaling liens, also known as the inverse-order-of-alienation doctrine, enables a creditor to recover a debt from a property that has been sold off in separate parcels. Under this principle, the creditor can first collect from the parcel still owned by the original owner, then from the most recently sold parcel, followed by the second most recently sold parcel, and so on until the debt is fully satisfied. For instance, if John owns a property with three parcels (A, B, and C) and sells parcel A to Sarah and parcel B to Tom, the creditor can pursue collection from parcel C (still owned by John), then from parcel B (sold last), and finally from parcel A (sold first). This example demonstrates how the rule of marshaling liens operates in practice, ensuring a fair and orderly process for all parties involved.
The rule of marshaling liens is a legal principle that requires a creditor with two or more liens on a debtor’s property to satisfy its claim out of the property that is not subject to the junior lien before seeking satisfaction from the property that is subject to both liens.
The rule of marshaling liens typically applies in situations where a debtor has multiple properties and a creditor holds a senior lien on one property and a junior lien on another property.
The purpose of the rule of marshaling liens is to prevent a senior lienholder from unfairly seeking satisfaction from a property that is also encumbered by a junior lien, thereby preserving the junior lienholder’s interest in the property.
The rule of marshaling liens may require a senior lienholder to satisfy its claim from the property that is not subject to the junior lien before seeking satisfaction from the property that is subject to both liens, which may limit the senior lienholder’s ability to recover its debt.
In some cases, the rule of marshaling liens may be waived if all parties involved agree to waive its application through a written agreement.
If a creditor violates the rule of marshaling liens, the junior lienholder may have grounds to challenge the creditor’s actions and seek legal remedies to protect their interest in the property.
The rule of marshaling liens may impact foreclosure proceedings by requiring a senior lienholder to first seek satisfaction from the property that is not subject to the junior lien before foreclosing on the property that is subject to both liens.
There may be exceptions to the rule of marshaling liens, such as in cases where the junior lienholder has consented to the senior lienholder seeking satisfaction from the property that is subject to both liens.
In bankruptcy cases, the rule of marshaling liens may impact the distribution of assets to creditors and the priority of claims against the debtor’s property.
If you believe the rule of marshaling liens applies to your situation, it is important to consult with a qualified attorney who can provide guidance on how to protect your interests and navigate the legal complexities of this rule.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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