12.12.17 Mechanic's Liens

Mechanic’s Lien Coverage Requires Underwriter Approval.

Can the Construction Loan Mortgage have initial priority over mechanic's liens?

Yes, however the lien must be filed of record prior to commencement of construction. Site preparation does not constitute commencement of construction. Prudence would dictate that a certificate of non-commencement be obtained from a civil engineer, or surveyor indicating the fact that there is no visible evidence as to commencement of construction, nor any materials delivered to the site.

There is an exception to the above, however, under Section 66-11-108, TCA, which requires that a lender consent to a contract, or by implication, if he/she fails to respond within 10 days, the lien may be superior to the construction lien.

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

Once the priority of the lien is established, subsequent filings will not prime the construction loan. As in most jurisdictions, however, it is customary to make periodic up dates as the status of title, as disbursements are made.

If priority is lost, can it be regained?

Only by obtaining waivers from all parties in interest.

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

It is necessary for the work to be done upon, or placed upon the property, to obtain lien rights. (TCA 66-11-102)

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

Each lienor shall have a lien in proportion to the amount and value of the work he does, or materials furnished.

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

Any contractor, laborer, or supplier has 90 days in which to file notice of lien, and an additional 90 days in which to enforce this lien by filing of a suit. However, there is a one year period in which this may be done when the contractor, supplier, or laborer is dealing directly with the owner. Filing date is determined by the completion of construction. This applies to both contractors and subcontractors.

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

The lien is lost if the lienor fails to cause an attachment to be issued, and levied within one year after the accrual of his right. Merely filing suit will not preserve lien.

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

Yes. TCA 66-11-143 provides for the filing of a Notice of Completion. Claimants are allowed 10 days in which to respond. In order to be effective the property must be 100% complete. Evidence may be introduced that the work was actually completed on another date, thereby voiding the notice. Caution is recommended in this area.

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

The Code provides in Section 66-11-142 for the placement of a Bond, with sureties approved by the Court, in an amount equal to double the amount of 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?

Each type of contractor can waive their own rights to have a lien but non of them can waive anyone else's rights.

Can a bona fide purchaser or bona fide lender take free of mechanic's liens later filed for earlier work?

Under Tennessee laws, neither a bona fide purchase nor bona fide lender can acquire property fees from existing rights of mechanic and materialmen.

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

We required that an Affidavit and Indemnity Agreement be obtained from the builder or borrower. It is also required that a certification of non-commencement be obtained from a surveyor, or engineer. The certificate must bear a date and time subsequent to the date of the filing of the construction loan. The certificate must also indicate that there are no materials upon the land covered by the construction loan.

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

Yes, it is customary to add the "pending disbursement" clause.

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