12.12.17 Mechanic's Liens

Mechanic’s Lien Coverage Requires Underwriter Approval.

Priority

Can the Construction Loan Mortgage have initial priority over mechanic's liens?

Yes, but only as to those advances made before the filing a Notice of Lien. See D.C. sec. Code 38-109.

Will initial priority as to future disbursements be retained only if certain procedures are followed?

Only if agent is in a position to control disbursements of construction monies and/or inspect and obtain waivers of right to lien from potential claimants after payment.

If priority is lost, can it be regained?

Yes. If before filing Complaint, by satisfaction and release or bonding. See D.C. Code sec. 38-119. If after filing, by payment of disputed amount into court or by obtaining a bond. See D.C. Code sec. 38-118.

Is there a difference between on-site and off-site work?

No. Survey work off site not covered. However, persons providing labor and materials to fill land in exercise of riparian rights, to dredge the river channel in front of same and to construct wharves and piers out from same are entitled to lien. See D.C. Code sec. 38-123.

Is priority the same for all contractors and subcontractors on the same project?

No. While under D.C. Code sec. 38-103 subcontractors are bound by contractor's breach of his agreement with owner (sec. 38-104) and are otherwise fully protected (sec. 38-108), the claims of subcontractors are given priority over those of contractors upon distribution of proceeds of sale in execution of lien. See D.C. Code sec. 38-112 and 38-113.

Time Limits

What are the time periods for recording lien claims by original contractors and subcontractors?

Notice of intent to claim lien must be recorded in records of Recorder of Deeds (Land Records) either during construction or within three (3) months after completion of work. See D.C. Code sec. 38-102.

After what period of time can you waive a mechanic's lien if no suit is filed?

Lien created by recording Notice of Intent, obtaining service upon owner and no objection. No hearing necessary unless objection. See D.C. Code sec. 38-106. However, suit must be filed to enforce the "automatic" lien. Enforcement is barred unless action is filed either within one (1) year from filing Notice with Recorder or within six (6) months after completion of building or repairs (?). If action is not brought within 1 year lien is void unless claim is not yet due in which case the action must be filed within three (3) months after it becomes due.

Removing or Waiving Liens

Is there a statutory procedure for affidavits of completion or notices of completion?

No.

Can a statutory bond terminate the mechanic's lien as an encumbrance on the title?

Yes. See D.C. Code sec. 38-118 and 119.

Can the original, general, or subcontractor's contract or waiver agreement subordinate or waive mechanic's liens by general contractor and/or subcontractors?

Apparently not. D.C. Code sec. 38-104 says rights of subcontractors are subject to the terms of the contract between owner and general contractor "except such as shall relate to the waiver of liens." Sec. 38-107 confers upon subcontractors (but not those claiming through them) the right to demand and know the terms of any contract between the owner and general contractor.

Can a bona fide purchaser or bona fide lender take free of mechanic's liens later filed for earlier work?

Generally, no. The only exceptions are construction mortgages to the extent advances are made prior to the recording of Notice and purchase money mortgages recorded within 10 days of the date of last acknowledgment. See D.C. Code sec. 38-109.

Title Company Requirements

What are the customary requirements for issuing Loan Policies on construction loan mortgages?

Inspection, control over disbursement of loan proceeds and execution of waivers by potential claimants.

Is it customary to add a "pending disbursement" clause or mechanic's lien exception in the Loan Policy insuring a construction loan mortgage?

Yes. The following pending disbursement clause is commonly used in Commitments and lender policies on construction loans: "Pending disbursement of the full proceeds of the loan secured by the Deed of Trust referred to in Schedule A hereof, this Policy insures the insured only to the extent of the funds actually disbursed but shall increase as subsequent disbursements are made by the insured on good faith and without knowledge of any defects in or objections to title, up to the Amount of Policy stated in Schedule A provided that prior to or at the time of each such disbursement the title shall be continued down to such time and any liens and other objections to title which may have arisen between the Date of Policy and the date of such disbursement shall be added to Schedule B hereof."

Also subject to any bulletins relating to mechanic’s liens.