The power of retention

With real estate, the situation may arise that a mortgage lien is created during construction for the benefit of the bank. If the principal goes bankrupt, and the contractor exercises the lien, who gets to sell the real estate? The Supreme Court recently answered this question in detail.

The main rule: the oldest right takes precedence

The main rule is that the lien can be invoked not only against the debtor, but also against third parties with a younger right, such as a (later established) mortgage right. For this purpose, it is not important when the lien itself is invoked, but when the builder has obtained actual control over the construction site. After all, from that moment the lien has arisen.

To invoke the lien against the bank, however, it is necessary for it to be clear to third parties that the actual power lies with the contractor. In construction, this will happen relatively quickly, because it is common practice that the construction site or the building itself, are closed off to third parties, permission must be sought from the executor when entering, and the builder advertises fences around the site.

The exception: an agreement entered into authoritatively

The lien can also take precedence over the mortgage right, if the latter right was entered into before the contractor acquired actual control over the property. In that case, the principal must have entered into the contract of contracting authority. However, even if the building contract was not authorized, but the contractor did not have to doubt this, the lien may still take precedence over the (older) mortgage right of the bank.

Special position lien also in case of bankruptcy

As shown above, the lien is one of the strongest rights a creditor can exercise, as it can even take precedence over a mortgage right.

If the debtor is in such dire straits that it turns into a fight between the holder of the lien and the holder of the mortgage right, bankruptcy lies in wait. But even in that situation, the position of the – in this case contractor – remains very strong. Unlike an attachment, the lien is retained in the event of bankruptcy. However, this is subject to a special regime, which we already described in a previous article.

Questions?

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