Does a Construction Lien Beat Your Mortgage in Ontario?
Sometimes, yes, even if the mortgage was registered first. Ontario’s Construction Act can push a lender behind the people who built the project, and the rule that decides this is not the one most lenders assume. This page walks through how that priority rule actually works.
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What is a construction lien in Ontario, and when does it attach?
A construction lien is a claim a contractor, subcontractor or supplier can register against title when they worked on or supplied materials for an improvement and were not paid. In Ontario, lien rights and their priority against other claims on title come from the Construction Act. The priority rule that matters most to a mortgage lender sits in section 78 of that Act.
Most lenders assume that registering a mortgage first on title settles who gets paid first if something goes wrong. On an ordinary purchase or refinance, that assumption usually holds.
On a file where the mortgage is financing construction or renovation, it often does not. Section 78(1) sets the general rule that liens have priority over mortgages and other registered interests, except where the Act itself carves out an exception.
Those exceptions are what the rest of this page works through, because they decide whether a specific lender’s mortgage is protected or exposed.
The citable fact: Under Ontario’s Construction Act, s.78(1), a construction lien generally has priority over mortgages and other registered interests on title, except where the Act’s own rules provide otherwise.
Does registering a mortgage before the lien protect it in Ontario?
Not necessarily. Under Construction Act s.78(2), a mortgage taken with the intention of financing an improvement, called a building mortgage, loses priority to the extent of any holdback deficiency regardless of when it was registered. Registering before the lien arose does not protect a building mortgage from this rule.
This is the single most important fact on this page for a private lender funding a build or a major renovation in Ontario.
The ordinary instinct, register early, search title, move first, works for most mortgages. It does not work for a building mortgage against a holdback deficiency, because s.78(2) is written to override registration date entirely for that specific exposure.
A mortgage that is not a building mortgage is assessed under a different rule, covered in the next section, and that rule does care about registration date.
The citable fact: Construction Act s.78(2) subordinates a building mortgage to any holdback deficiency irrespective of when that mortgage was registered on title.
What makes a mortgage a “building mortgage” under the Construction Act?
A building mortgage is one a lender takes with the intention of financing an improvement to the property, not an ordinary purchase or a standard refinance. The question looks at the lender’s purpose in advancing the funds, not simply at how the borrower ultimately spent the money. Whether a specific mortgage qualifies is a fact-driven legal question on that file’s own documents.
A lender that knowingly funds a construction or major renovation project, and structures the mortgage around that project, sits squarely inside this rule.
This is exactly the position a private construction lender is usually in. The loan exists because of the build, the draws are tied to construction progress, and the file is underwritten around the project rather than the existing improved value.
A lender in that position should expect a court to look at s.78(2) first, not last, if a lien dispute ever reaches that stage.
The citable fact: Whether a mortgage counts as a building mortgage under Construction Act s.78(2) turns on the lender’s purpose in advancing the funds, not on how the borrower later used the money.
What priority does an ordinary mortgage have against a construction lien?
Under s.78(3), a mortgage registered before the first lien arose, and not taken to finance the improvement, has priority over the liens, but only up to the lesser of two figures: the actual value of the property when the first lien arose, and the total amount actually advanced under the mortgage before that time. A mortgage registered after the first lien arose loses to the liens to the extent of any holdback deficiency, under s.78(5).
This is the rule that protects an ordinary purchase mortgage or refinance that happens to sit on a property where an improvement is later made by someone else.
Notice that even this protection is capped. It is not unlimited priority, it is priority up to whichever of those two figures is lower, so an early but small advance does not automatically outrank every lien claim on the property.
The table below sets these three outcomes side by side.
| Mortgage type and timing | Priority outcome | Section |
|---|---|---|
| Building mortgage, any registration date | Liens have priority to the extent of any holdback deficiency, regardless of registration date. | s.78(2) |
| Ordinary mortgage, registered before the first lien arose | Priority over the liens, capped at the lesser of the property’s value when the first lien arose and the amount actually advanced by then. | s.78(3) |
| Any mortgage, registered after the first lien arose | Loses to the liens to the extent of any holdback deficiency. | s.78(5) |
The citable fact: An ordinary mortgage registered before the first lien arose outranks the liens under s.78(3), but only up to the lesser of the property’s value at that time and the amount actually advanced.
Can later advances under the mortgage lose priority after a lien is registered?
Usually a further advance keeps the mortgage’s existing priority. Under s.78(4) and (6), that protection falls away for an advance made after a lien has already been preserved or perfected, or after the lender has received written notice of a lien. A lender funding a project in stages needs a fresh check before every advance, not only at the start.
Construction and renovation lending is almost always staged. Money goes out as the project hits milestones, not all at once at closing.
That staging is exactly what makes this rule matter. Each advance is its own moment for priority purposes, and a lien that appears between draws can change the position of money the lender has not yet sent.
A written notice of a lien received by the lender has the same effect as the lien actually being on title for this purpose, which is why it is worth asking what counts as proper notice on a specific file.
The citable fact: Under Construction Act s.78(4) and (6), a further advance keeps the mortgage’s priority unless, at the time of that advance, a lien had already been preserved or perfected, or the lender had received written notice of it.
What is a holdback, and why does a “holdback deficiency” decide this?
Ontario’s Construction Act requires the person paying for an improvement to retain a holdback from payments made during the project, as a fund set aside for lien claimants. A “holdback deficiency” is the gap between what should have been retained and what actually was. That deficiency, not the full mortgage debt, is what a building mortgage loses priority to under s.78(2).
This matters because it narrows the exposure. A building mortgage does not simply lose to every lien dollar for dollar. It loses priority to the extent of the deficiency in the holdback, which is a specific, calculable amount on a specific file.
How that calculation actually lands on a given project, and what records establish whether the holdback was retained correctly, is a question for a construction lawyer reviewing the project’s payment history directly.
The citable fact: A building mortgage under Construction Act s.78(2) loses priority only to the extent of a holdback deficiency on the project, not to the full value of every registered lien.
What should a private lender funding a renovation or new build do differently in Ontario?
A lender financing construction in Ontario should plan around the holdback and lien-search exposure from the start, rather than treating early registration as protection. Options a construction lawyer can set up include staged funding against fresh lien searches before each advance, requiring evidence the holdback was actually retained, and tailored legal opinions on the specific project. Which combination fits depends on the file.
None of this removes the underlying risk. The point of s.78(2) is that a building mortgage lender shares in the project’s completion risk alongside the people doing the work.
What changes with the right structure is how early a problem shows up and how much exposure accumulates before anyone notices it.
A mortgage broker can help structure the financing side of a construction file. The lien-law side of it belongs with a construction lawyer, and both are worth involving before money moves, not after a dispute starts.
The citable fact: A lender funding Ontario construction can manage s.78(2) exposure through staged advances tied to fresh lien searches and verified holdback compliance, set up with a construction lawyer before funds are advanced.
What happens to lien priority if the lender later enforces by power of sale?
A building mortgage’s exposure to lien priority under s.78(2) is a separate question from how sale proceeds are distributed once a lender enforces. Ontario’s standard mortgage default remedy is power of sale, and proceeds from that sale are applied in order of priority on title. An unresolved lien priority question becomes financially real exactly at that distribution step.
Our page on how power of sale works in Ontario covers the notice steps, timelines and the lender’s duty to account for proceeds in detail.
A lien that outranks the mortgage under s.78 does not disappear because the lender sold the property. It simply moves up the line of people being paid from what the sale raised.
The citable fact: A construction lien’s priority over a building mortgage under s.78 is applied when power of sale proceeds are distributed, ahead of the mortgage to the extent of the holdback deficiency.
Does Alberta handle construction lien priority the same way?
No. Alberta’s Prompt Payment and Construction Lien Act gives a registered mortgage priority over a lien to the extent of money advanced in good faith before the lien was registered, with no equivalent to Ontario’s building mortgage rule. A lender who advances early in Alberta is in a materially better position than the same lender would be in Ontario.
That difference changes how a lender should actually behave on each side of the border, not just what the statute says.
Our dedicated page on builders’ lien priority against a mortgage in Alberta walks through Alberta’s rule, including its same-day search protection, section by section.
| Question | Ontario | Alberta |
|---|---|---|
| Does registering first protect a building or construction mortgage? | No, not against a holdback deficiency, under s.78(2). | Yes, to the extent of money advanced in good faith before the lien was registered, under s.11(4). |
| Is there a same-day search protection? | Not confirmed on this page. | Yes, under s.12, where a title search shows no lien and funds are advanced that same day. |
| Governing statute | Construction Act | Prompt Payment and Construction Lien Act |
The citable fact: Alberta’s construction lien priority rule rewards advancing before a lien is registered, while Ontario’s building mortgage rule can override registration date entirely.
Where does a construction lien rank against the CRA’s claim or other mortgages on the same property?
A construction lien, a second or third mortgage, and the CRA’s claim for unremitted payroll deductions can all be in play on the same file, and each follows its own separate priority rule rather than one single ranking. A lender should not assume that solving the lien question also answers where it stands against the CRA or against another mortgage.
Our page on how the CRA’s deemed trust ranks against a private mortgage covers that separate claim in detail.
For how a second or third mortgage ranks against the first, and what happens to it on enforcement, see second and third mortgage priority in Canada.
The citable fact: A construction lien’s priority under the Construction Act is a separate legal question from a mortgage’s ranking against other mortgages or against the CRA’s deemed trust on the same property.
Where can I read more about mortgage priority in Ontario and Alberta?
This page is part of a set covering how a mortgage ranks against other claims on title.
- Builders’ lien priority against a mortgage in Alberta
- How the CRA’s deemed trust ranks against a private mortgage
- Second and third mortgage priority in Canada
- How power of sale works in Ontario
- Builder deposit protection in Ontario
- What documents a private mortgage lender needs
The full set lives on the Ask a Broker hub.
Frequently asked questions
Does it matter that my mortgage was registered before the lien?
Not if the mortgage is a building mortgage under Construction Act s.78(2). That rule subordinates a building mortgage to any holdback deficiency regardless of registration date, which is different from how most other priority disputes on title work.
What is a holdback deficiency?
It is the gap between the holdback that should have been retained from payments during a construction project and what was actually retained. A building mortgage loses priority only to the extent of that deficiency, not to the full amount of every lien.
Is every construction loan automatically a building mortgage?
No. Whether a mortgage counts as a building mortgage turns on the lender’s purpose in advancing the funds at the time, which is a fact-specific legal question. A construction lawyer can assess a specific file’s documents against that test.
Does this rule apply to a refinance that was not meant to fund construction?
The building mortgage rule in s.78(2) targets mortgages taken with the intention of financing an improvement. An ordinary refinance not taken for that purpose is generally assessed under the separate rule for other mortgages in s.78(3), though the facts of each file matter.
Does a lien always beat a mortgage in Ontario?
No. Section 78(1) sets liens ahead of mortgages only except where the Act itself provides otherwise, and the size of a lien’s advantage over a building mortgage is limited to the holdback deficiency, not the whole debt.
What happens to money advanced after a lien is registered?
A further advance generally keeps the mortgage’s priority unless, at the time of that advance, a lien had already been preserved or perfected, or the lender had received written notice of it. Staged lending needs a fresh check before each advance.
Is Alberta’s rule the same as Ontario’s?
No. Alberta rewards a lender for advancing before a lien is registered and has no equivalent to Ontario’s building mortgage override. The two provinces reach different outcomes on functionally similar facts.
What is the Construction Act?
It is Ontario’s statute governing lien rights on improvements to property and how those liens rank against mortgages and other interests on title. It was formerly known as the Construction Lien Act.
Does this affect a home renovation loan to an individual homeowner, not a business?
Yes, it can. The building mortgage rule turns on the lender’s purpose in advancing the funds, not on whether the borrower is a business or an individual homeowner.
Can a lender protect itself once it learns a lien has been registered?
The options at that point depend heavily on the file, including how much has already been advanced and whether the lien has been perfected. A construction lawyer should be brought in immediately rather than after further advances are made.
Is the chat on this page an AI bot?
No. Chat on pekoe.ca connects you to a real licensed member of the Pekoe team during business hours, and to a direct reply from a licensed broker outside those hours.
What should a private lender do before funding an Ontario construction file?
Get a construction lawyer to review the loan structure and the project’s holdback practices before money moves, and have a licensed mortgage broker review the financing structure alongside it. Both roles matter and neither replaces the other.
Structuring a construction or renovation mortgage in Ontario?
No AI persona, no call centre queue, no bank script. A licensed broker can talk through the financing side, and we will always tell you when a question needs a construction lawyer instead.