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. Sections 1311.13 and 5301.232 O.R.C. If a mortgage meets the requirements of Section 5301.232 O.R.C. and is recorded prior to the visible commencement of work or labor or the furnishing of materials and is recorded prior to the recording of the notice of commencement it will have initial priority

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

Yes. Section 5301.232 O.R.C. Future advances will retain the same initial priority as the original mortgage provided:

The holder of the mortgage, who is not obligated to disburse, has not received written notice of any lien or encumbrance at the time of the advance; or

The holder of the mortgage, who is not obligated to disburse, has not received written notice of work or labor performed or to be performed or machinery, fuel or materials furnished or to be furnished at the time of the advance; or

The holder of the mortgage is obligated to make an advance under a contractual commitment to do so.

If priority is lost, can it be regained?

Yes. Sections 1311.13 and 1311.14 O.R.C. If priority is lost due to the visible commencement of work or labor or the furnishing of material prior to the recording of the mortgage, the filing of the notice of commencement will re-establish the priority date from that date for all work performed or materials furnished thereafter. Payments for the improvement made pursuant to Section 1311.14 O.R.C. will regain priority to the extent of payment.

NOTE: If the notice of commencement is filed prior to the filing of the mortgage priority is lost for the entire project and priority cannot be regained.

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

Yes. There are no lien rights attached to off-site work, except as to the materials actually furnished to the job site as finished material (Section 1311.02 O.R.C.).

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

Yes. Section 1311.13 O.R.C. If several liens are obtained by several persons upon the same improvement they have no priority among themselves except as set forth in Section 1311.13(A)(1)(2) and (B)(1) of the Revised Code.

Time Limits

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

Pursuant to Section 1311.06 O.R.C. the affidavit for mechanic's liens must be filed by the person claiming the lien, from the date the claimant last performed work or labor or furnished materials within one of the following periods:

Sixty (60) days if the lien arises in connection with a one to two family dwelling or residential condominium unit; or

One hundred twenty (120) days if the lien arises in connection with an oil or gas well; or

Seventy-five (75) if the lien arises in connection with any other construction other than set forth in items 1 and 2 above.

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

Pursuant to Section 1311.13 O.R.C. mechanic's lien continue in force for six (6) years after an affidavit is filed. If an action is brought to enforce the lien within that period, the lien remains in force until final adjudication. The recorded is permitted to destroy the record of all mechanic's liens which have been recorded for a period of ten (10) years or longer.

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?

Yes. Section 1311.11 O.R.C. A bond or other reasonable security may be posed in double the amount of the claim secured by the lien, or if the claim secured by the lien exceeds five thousand ($5,000.00) dollars in the amount of one and one-half times the amount of the claim. Upon acceptance and approval of the bond by the court, it shall be substituted for the security of the lien and the lien is void and the property is wholly discharged from the lien.

A bond or other reasonable security may be posted and the lienholder may then be served with a notice to commence suit. After services is completed and an affidavit is recorded by the person who sought to serve the notice to commence suit, the lienholder has sixty (60) day to commence suit on the lien. If such is not commenced, or if commenced it is dismissed with prejudice prior to adjudication, the lien is void and the property is wholly discharged from the lien.

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?

Yes in the residential area, under a home construction contract or a home purchase contract as defined in pursuant to Section 1311.011 O.R.C.

No, if the improvement is other than a one or two family residential dwelling or residential condominium unit.

Title Company Requirements

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

Survey and surveyor's report showing that no visible work or labor commenced or materials furnished to job site.

Recordation of Mortgage.

Recordation of Notice of Commencement.

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

Yes, it is customary to add a "pending disbursement" clause in the Loan Policy insuring a construction loan.

Whether a mechanic's lien exception is included in a Loan Policy insuring a construction loan is determined on a case by case basis depending upon the circumstances.

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