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 priority can be lost as to subsequent disbursements. MCLA 570.1119(4)-Provides that a mortgage recorded prior to the first actual physical improvement (as defined by MCLA 570.1103(1)) has priority over a construction lien. The priority is only absolute for those advances made prior to any actual physical improvement. An advance made, pursuant to the mortgage, but subsequent to the first actual physical improvement only continues to have priority if:

 

  • Mortgagee has received a contractors sworn statement pursuant to MCLA 570.1110.
  • Has made a disbursement pursuant to the sworn statement and,
  • Has received waivers of lien from the contractor and all subcontractors, who have provided notice of furnishings as required by MCLA 570.1109.
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    Will initial priority as to future disbursements be retained only if certain procedures are followed?

    See bulleted item, above.

    If priority is lost, can it be regained?

    Priority, once lost, can not be regained.

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

    Yes. Surveyors and Architects have lien rights.

    MCLA 570.1107 - Allows each contractor, subcontractor, supplier or laborer who provides an improvement to real property to have a construction lien right. Improvements "is defined at MCLA 570.1104(7)-which included on-site and off-site work. So they may both have construction lien rights. ?The Difference "although both on-site and off-site can have construction lien rights, only on-site that results in "actual physical change in, or alteration of, real property pursuant to a contract, (MCLA 570.1103(1)) can be classified as actual physical improvement. It is this actual physical improvement event that is the starting basis for a construction lien priority date.

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

    MCLA 570.1119(1)-Provides for equal priority between lien Claimants-regardless of the date work was performed or date of recording or the lien, except as provided for in MCLA 570.1119(4).

    Time Limits

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

    MCLA 570.1111(1)-Right to a construction lien shall cease to exit unless within 90 days after the lien claimant's last furnishing of labor or materials for the improvement, pursuant to the contract, a claim of lien is recorded.

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

    MCLA 570.1117-One year after the date the claim of lien was recorded.

    Removing or Waiving Liens

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

    We have no provision for a notice of completion. We need to get full waivers from each and every supplier, laborer, subcontractor and contractor.

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

    Yes. MCLA 570.1116-Claim of lien may be vacated and discharged at any time, if a bond for twice the amount of the lien claim, with the lien claimant as the obligee, is filed with the county clerk and served on the lien claimant.

    The County Clerk notifies the lien claimants that a bond has been filed. He does so within 10 days. Lien claimant has 10 days to object to the bond because amount, of the bond, or the surety. If no objection, a certificate shall be issued and recorded by the county clerk. If there is an objection, they will be addressed by the county clerk who will then decide whether to issue the certificate or not. Once the certificate is recorded the lien is discharged as against the property.

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

    There is no provision to waive a recorded construction lien; they are discharged by a discharge of lien. A construction lien "right "can be waived through four various statutory waiver forms. A right to construction lien cannot be waived in advance of work performed, except to the extent of payment made. MCLA 570.1115.

    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?

    Sworn statement

    Waivers of Lien (unconditional)

    Indemnities

    Providing notices of furnishing

    It is also not uncommom to require submission of documents such as a construction contract, draw projections and financials.

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

    At the time of issuance of the Commitment we require the recordation of the Notice of Commencement and submission of an affidavit by the Designee identified on the Notice of Commencement that they/it will submit copies of all Notices of Furnishing supplied to them pursuant to the Act, to the Company. We then insert the Michigan Pending Disbursement Clause in the exceptions in Schedule B on both the Commitment and Policy, when issued. We then issue the Michigan Construction Loan Disbursement Endorsement commensurate with disbursements to down date title.

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