The following example illustrates how lien priority works in paying off secured debts. A homeowner is foreclosed on a second mortgage taken out in 2001 for $25,000. The first mortgage, taken in 1997, has a balance of $150,000. Unpaid real estate taxes for the current year are $1,000. There is a $3,000 mechanic's lien on the property for work performed in 1999. The home sells for $183,000.

The proceeds are distributed in the following order:

1. $1,000 real estate taxes
2. $150,000 first mortgage
3. $3,000 mechanic's lien
4. $25,000 second mortgage
5. $4,000 balance to the homeowner

Note the risky position of the second mortgage holder: the property had to sell for at least $179,000 for the lender to recover the $25,000.