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. Construction loan mortgages can have initial priority over construction (formerly mechanic's) liens. This may be obtained in one of two ways. Certain lenders have statutory priority even though work has commenced provided no lien has been filed prior to the recordation of the mortgage. Lenders eligible for this type of priority are listed in Wisconsin Statute Section 706.11. It should be noted that certain lenders may also be protected as assignees under this statute.

The other way for a mortgage to have priority is if it filed prior to the visible commencement in place of the work of improvement. Section 779.01(4) goes on to say "When new construction is the principal improvement involved, commencement is deemed to occur no earlier than the beginning of substantial excavation for the foundations, footings or base of the new construction, except where the new construction is to be added to a substantial existing structure, in which case the commencement is the time of beginning of substantial excavation or the time of the beginning of substantial preparation of the existing structure to receive the added new construction, whichever is earlier. The lien also shall be prior to any unrecorded mortgage given prior to the commencement of the work of improvement, if the lien claimant has no actual notice of the mortgage before the commencement. Lien claimants who perform work or procure its performance or furnish any labor or materials or plans or specification for an improvement prior to the visible commencement of the work of improvement shall have lien rights, but shall have only the priority accorded to other lien claimants."

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

Some courts in other states have held that a construction mortgage which has priority over construction liens loses the priority when the proceeds of the mortgage are disbursed for purposes other than for the payment of construction costs. As of yet, Wisconsin courts have not decided this issue.

Section 706.11 (1m) provides that when a mortgage states on its first page that it is a construction mortgage, advances made have the same priority as the recorded mortgage.

If priority is lost, can it be regained?

If priority is lost, it is lost forever.

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

See answer to first bulleted item.

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

All construction lien claimants are in parity with each other. If one claimant primes the mortgage, all do.

Time Limits

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

The lien claim must be filed within 6 months from the date the claimant furnished the last labor or materials. (Wisconsin Statute Section 779.06 (1)).

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

Lien claims must be foreclosed within 2 years of the date of the filing of the lien claim or they may be waived. (Wisconsin Statute Section 779.06(1)).

Removing or Waiving Liens

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

There is no such procedure.

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

Wisconsin Statute Section 779.08 provides such a procedure, although the recent case of Torke et. al v. Lakeshore Towers may cloud the use of the 125% figure as a practical matter.

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

Wisconsin does not have any statutes allowing this.

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

Not in Wisconsin. The construction lien is in essence an inchoate lien and affects bona fide purchases.

Title Company Requirements

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

If an agent has not been asked to handle the disbursement process, the agent will generally rely on an owner's affidavit to ascertain whether work has been done or not. If it has and the lender or assignee has statutory priority or if proof can be obtained that no visible work has commenced etc., a loan policy with the lien exception deleted is given.

Where the agent is handling the disbursements, once the agent has received a contractors breakdown, the various draw requests with appropriate waivers and brought the search date down through the last disbursement without finding any change or filed liens and where the owner and/or an inspector have acquiesced, then a policy is issued without exception for construction (mechanic's liens).

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

In general, this is not the custom.

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