A lienor can lose its lien rights by foreclosing on the lien without recording a lis pendens...
Construction lienors may have payment options against construction lenders foreclosing upon superior mortgages...
A recent Florida appellate court decision extended a lender’s liability to contractors for failure to fully fund a construction loan on a project. §713.3471 of the Florida Statutes makes construction lenders liable to contractors and lienors who served a notice to owner if the lender ceases funding a construction loan without first notifying the contractor and lienors. In that situation, the lender could be liable for the actual construction costs incurred plus 15% for overhead and profit from the date on which the notice should have been provided until the date it actually is provided, if at all.
In an opinion not yet reported, Whitehead v. Tyndall Federal Credit Union, the court liberally interpreted this statute to make a lender liable to the original contractor when the lender failed to pay that contractor, but instead paid a replacement contractor. The lender denied liability, saying it fully funded the construction loan as required by the statute, even though the funding went to a subsequent contractor. The court held that, since the construction loan funds didn’t all go to the original contractor, the lender was required to provide statutory notice to the contractor that loan proceeds would no longer be funded to that contractor, even though they would later be paid to the subsequent contractor. The court reversed summary judgment in the lender’s favor, paving the way to the lender’s potential liability to the contractor for actual costs plus 15% overhead and profit.
Therefore, in this environment where non-payment of contractors has proliferated, consideration should be given to whether claims against the construction lender are available
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.