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Construction Law Authority / Construction Liens  / Mortgages Don’t Always Trump Construction Liens

Mortgages Don’t Always Trump Construction Liens

In this economy, with such a high frequency of mortgage foreclosures, construction lienors often believe that a mortgage foreclosure would wipe out a construction lien. Although this is usually the case, you would be surprised at how often the lien actually takes priority over the mortgage. Before summarily assuming the mortgage foreclosure wipes out the lien, the lienor should consider a few angles to preserving the lien priority.

Run a title search and compare the date of recording the lien to the date of recording the mortgage. If the lien is recorded before the mortgage, then it likely takes priority over the mortgage. This means that the mortgagee foreclosing on the property will sell the property at judicial auction subject to the lien. Therefore, the successful bidder at the foreclosure sale will buy the property with the construction lien still on it. In this situation, the mortgage foreclosure doesn’t harm the enforceability and effectiveness of the lien. To the contrary, the bank may be interested in buying out the lienor’s position so they can sell the property free and clear of liens. 

The same result can be obtained even if the mortgage was recorded before the lien as long as the notice of commencement was recorded before the mortgage.  If a construction lien is recorded during the duration of a notice of commencement, then the lien will relate back and take effect for title purposes as of the same date on which the notice of commencement was filed.  Therefore, even if the lien was recorded after the mortgage, if it was recorded during the duration of an open notice of commencement, it will take effect as of the date on which the notice of commencement was recorded.  If the notice of commencement predates the mortgage, then the lien will take priority over the mortgage even though it was recorded later than the mortgage.

Finally, if the bank foreclosing on the mortgage was the construction lender, then consider whether the lender has any liability to the lienor for failure to disburse construction funds.  §713.3471 of the Florida Statutes makes a lender liable to lienors if the lender fails to distribute all construction funds without first notifying the lienor that the funding is going to cease.  Although this kind of claim will not stop the mortgage foreclosure from proceedings and wiping out inferior construction liens, it could nevertheless provide alternative means for a lienor to ensure payment from a solvent entity notwithstanding the loss of the lien.

Therefore, before worrying over what appears to be a lost lien in the face of a mortgage foreclosure, do a little homework to see exactly what rights you may have and how to enforce them.  You may find that your position is actually stronger than originally perceived.

Lee Weintraub

Lee Weintraub

lweintraub@bplegal.com

At age 46, Lee Weintraub was the youngest recipient ever of the Lifetime Achievement Award from the Florida Bar’s Construction Law Committee. Mr. Weintraub is also an adjunct professor of law at Nova Southeastern University Shepard Broad College of Law teaching construction law. Mr. Weintraub has been recognized by Chambers USA – America’s Leading Business Lawyers every year since 2003. Chambers USA noted he focuses on licensing and construction defect litigation, but is particularly renowned for his expertise in the Construction Lien Law. He was also selected in the The Best Lawyers in America© every year from 2006 through 2018.

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