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?

The mechanic's liens provided for by statute are preferred to any lien, mortgage or other encumbrance, which may have attached subsequent to the time when the building, improvement or structure was commenced, work done, or materials or professional services were commenced to be furnished; also to any lien, mortgage, or other encumbrance of which the lienholder had no notice, and which was unrecorded at the time the building, improvement or structure was commenced, work done, or materials or professional services were commenced to be furnished. Idaho Code Annotated ("ICA") 45-506.

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

Annotation to ICA 45-506: All liens for labor commenced and materials commenced to be furnished prior to recording of mortgages or other liens are prior and superior liens to said mortgages or liens and the liens of all laborers for labor commenced, and materialmen for material commenced to be furnished, subsequent to the recording of said mortgages, are subordinate to said mortgages, when such work is done and material furnished by persons not theretofore connected with the construction of the building.

Annotation to ICA 45-506: The priority date of a lien for materials is the date materials were commenced to be furnished; although the claim of lien is usually filed after all the materials have been furnished, the lien relates back to the date on which materials were first furnished by the claimant. The general rule is that such a lien does not attach unless and until the delivery of construction materials to the site.

If priority is lost, can it be regained?

Each mechanic lien claimant stands on their own. Therefore, the lender's priority can be lost to individual lien claimants who started work or delivered materials prior to the recording of the mortgage or deed of trust. For a lender to regain priority as to a lien claimant that has worked on or provided materials for a project prior to the recording of the mortgage or deed of trust, a lien waiver with proper language subordinating the lien claimant's rights to the lender's lien must be obtained. The lender retains priority as to contractors, laborers and materialmen who commence work or deliver materials after the mortgage or deed of trust is recorded.

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

ICA 45-504 provides that a person contracting to improve a lot or the street adjacent to a lot shall have a lien upon the lot for work done. No cases on point were found as to off-site work generally, but the author anticipates that an Idaho court would find that a benefited lot could be subjected to such a lien.

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

In every case in which different liens are asserted against any property, the court must declare in the judgment the rank of each lien or class of liens which shall be in the following order:

  • All laborers, other than contractors or subcontractors.
  • All materialmen, other than contractors or subcontractors.
  • Subcontractors.
  • The original contractor.
  • All professional engineers and licensed surveyors.

Time Limits

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

ICA 45-507: 90 days

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

ICA 45-510 provides for a six month period after the date of filing to bring an action to foreclose the lien.

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?

ICA 45-519 filing of a statutory bond of 1½ times the amount of the lien: ICA 45-520 provides for release of the lien by posting of a surety bond.

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

If the claimant has knowledge of a mortgage that knowledge will defeat their claim of priority. See ICA 45-506. If a contract provides for subordination to a mortgage, there is no reason under the statute why the mortgage would not have priority over the construction contract.

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?

Indemnity agreement, financial statements, cost breakdown, inspection of land, lists of subs and suppliers, delivery of lien waivers. In many cases, the title company handles the construction.

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

It is customary on commercial transactions Underwriter approval is required to issue such a loan policy for either commercial or residential property without a "pending disbursement" clause or mechanic's lien exception.

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