12.12.17 Mechanic's Liens

Mechanic’s Lien Coverage Requires Underwriter Approval.

Priority

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

Yes.  Construction loan mortgages have initial priority over mechanic's and materialmen’s liens if the mortgage is properly filed of record prior to (1) the actual visible beginning of the improvement on the property or (2) the recording of a notice of a contract (AKA a statement of contract) for the furnishing of labor, skill, material, or machinery. South Dakota Codified Laws (“SDCL”) 44-9-1, SDCL 44-9-7 and SDCL 44-9-8.

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

A mortgage containing a written provision securing the repayment of future advances whether of not the lien creditor is obligated to make such future advances, has priority over all subsequent encumbrancers to the extent of all sums advanced. SDCL 44-1-13.

If priority is lost, can it be regained?

There is no statutory provision for regaining priority.

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

There is no statutory provision concerning distinctions between on-site and off-site work.

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

All liens, claims for labor performed or services or materials furnished for a mine or mining claim, oil or gas well or spring, are concurrent liens upon the property and are paid pro rata. SDCL 44-9-9.

There is no statutory provision regarding priority for other kinds of construction projects.

Time Limits

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

An original contractor or subcontractor must file their claim of lien within 120 days of the last work done or furnishing of the last item of skill, services, material, or machinery. SDCL 44-9-15

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

A perfected lien claim remains a lien on the property for 6 years unless an action to enforce the lien is filed. SDCL 44-9-24

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 liens as an encumbrance on the title?

Yes.  A mechanic's or materialmen’s lien may be released by an undertaking pursuant to the provisions of SDCL Chapter 44-4.

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

Yes. SDCL Chapter 44-9A provides a detailed procedure for construction lien waivers.

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

As against a bona fide purchaser, mortgagee, or encumbrancer without notice, no mechanic's lien may attach prior to (1) the actual and visible beginning of the improvement on the ground, or (2) the recording of a notice of a contract for the furnishing of labor, skill, material, or machinery for the improvement of the premises. SDCL 44-9-8.

Title Company Requirements

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

If mechanic lien coverage is requested, the following is required:  (1) proof that no labor, skill, materials, or machinery have been furnished, (2) that actual and visible construction has not commenced upon the property, (3) the a notice of contract or statement of contract for the furnishing of labor, skill, material, or machinery has not been filed as notice of a lien, and (4) no lien statements have been filed of record.

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

A Pending Disbursement Clause or a mechanic's lien exception is required in a Loan Policy insuring a construction loan mortgage.  Consult the current Stewart Bulletin for additional details concerning mechanic’s lien coverage during construction (as of 9/24/10, the current bulletin was MU2010008).

Contact Stewart underwriting personnel if there are any questions.

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