What gives priority to a construction mortgage over subcontractors' liens?

The correct answer is that at least 50% of the loan proceeds must be allocated for labor or materials to give priority to a construction mortgage over subcontractors' liens. This principle is rooted in the concept of ensuring that a construction loan is used primarily for its intended purpose: funding the actual labor and materials necessary for the project.

When a construction mortgage is taken out, the expectation is that the lender’s funds will be used to pay for construction-related expenses. If at least half of the loan proceeds are designated for labor and materials, it signals a strong commitment to fulfilling the construction project, which in turn enhances the lender's position. Because subcontractors contribute materials and labor to the project, their liens usually come into play when they are not compensated. However, when a significant portion of the construction loan supports these expenses, the lender effectively ensures that there are funds available to settle these obligations, thereby prioritizing their mortgage over any liens that subcontractors might have.

In contrast, other options like loan proceeds for personal expenses or longer contract durations do not impact the priority status of the mortgage in relation to subcontractors' liens. The date of the mortgage application also does not determine the allocation of funds, which is key in establishing priority in this context.