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?

No, MCA 71-3-542: A construction lien arising under this part has priority over any other interest, lien, mortgage, or encumbrance that may attach and which is filed after the construction lien attaches. MCA 71-3-542: A construction lien has priority to the extent of improvements that are removable. (Defined in Section 71-3-522 as the date of the first visible change in precondition of the land). An interest or lien that is filed before the construction lien attaches has priority over a construction lien, but if the proceeds were to be used for construction, the interest or lien does not have priority over the construction lien.

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

No.

If priority is lost, can it be regained?

No.

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

MCA 71-3-525(5) If a contracting owner contracts for improvements on real estate not owned by him as an improvement on his real estate or for the purpose of directly benefiting his real estate, there is a lien against the contracting owners' real estate being improved or directly benefited in favor of persons furnishing services or materials to the same extent as if the improvement had been on the contracting owners' real estate.

MCA 71-3-522 and 71-3-535 provide for parties entitled to a lien that arises from the first visible change in the physical condition of the premises. The right to lien from such date runs in favor of persons preparing site plans, surveys or architects regardless of whether a physical change actually occurs in the land.

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

MCA 71-3-541: Priority between lien claimants is equal regardless of date of first work or type. In the event of a shortage in the sale price at foreclosure there is a pro-rata sharing of proceeds.

Time Limits

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

MCA 71-3-535: 90 days after the claimant's final furnishing of services or materials or after the Owner files a note of completion.

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

MCA 71-3-562: Actions must be commenced within 2 years from on e date of the filing of the lien.

Removing or Waiving Liens

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

MCA 71-3-533, et seq. provides that the notice of completion may be filed at any time after completion by publishing a notice 3 times, once a week, and recordation of the notice and proof of publication. MCA 71-3-535 relating to attachment of lien provides that such lien does not attach later than 90 days following the filing of such notice of completion, meaning that at least 90 days, plus 3 weeks would then be the drop dead date.

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

Yes, MCA 71-3-551, et seq.

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

No.

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

No.

Title Company Requirements

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

Generally, lien coverage is not granted on construction loans without underwriter approval, and then only rarely. Typical requirements of financial statements, inspection, indemnity, approval of disbursing plan, etc. are used.

Following construction, the Company requires, where applicable a Notice of Completion [MCA 71-3-533, et seq.], and delivery to the Company of Notices of right to claim a lien, where applicable [MCA 71-3-531].

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

No, because the Loan Policy generally contains a mechanic's liens exception during construction

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