Legal Definitions - rule of marshaling liens

Definition: The rule of marshaling liens, also known as the inverse-order-of-alienation doctrine, is a principle that allows a creditor to collect on a mortgage or lien on a property sold off in successive parcels. The creditor can collect first from the parcel still held by the original owner, then from the parcel sold last, then next to last, and so on until the amount has been satisfied.

Example: Let's say John owns a property with three parcels, A, B, and C. He takes out a mortgage on the entire property but later sells parcel A to Sarah and parcel B to Tom. John defaults on the mortgage, and the creditor wants to collect the outstanding amount. According to the rule of marshaling liens, the creditor can first collect from parcel C, which is still held by John, then from parcel B, which was sold last, and finally from parcel A, which was sold first.

This example illustrates how the rule of marshaling liens works in practice. It allows the creditor to collect the outstanding amount in a specific order, which is fair to all parties involved.