If you’re purchasing commercial property, there’s a good chance that you’ll be building on the property or at least making some significant improvements. If you’re not doing the work yourself, you will likely be hiring builders or contractors to perform the improvements. They’ll need to get paid for their work, but you’ll also have a responsibility to the mortgage.
If money ever gets tight, how is it determined who gets paid first? Below, we explain how priority is established when dealing with mortgages and mechanic’s liens.
Prioritizing Your Payments
If you’re buying a property that you plan to make improvements to, it’s important that you work with a title services company to protect your interests when it comes to making payments. Once construction has begun on a property, all contractors and suppliers have a payment priority over a subsequently recorded mortgage. Depending on your state, that priority may be established even earlier. If parts are ordered or supplies are dropped off at the site, it could constitute the establishment of priority over any subsequently recorded mortgage.
Working with a title services company can ensure that your mortgage is recorded prior to any construction projects so that a mechanic’s lien can’t be prioritized over your mortgage. We can also travel to the site and take pictures and record other evidence to help your argument as to who has payment priority if one party is contesting the order.
In the event that work has begun, we may be able to insure the lender as if they have priority over potential mechanic’s liens. This is known as “early start” coverage. When it’s appropriate, the title company works to mitigate risk that could cause payment problems. For example, the title company may:
Let the team at Commercial Partners assist with all crucial aspects of your commercial purchase. From locating a property to closing a deal and making necessary improvements, we’ll help guide you through the process and ensure your interests are protected. For more information on how we’ll do this, or for help with a specific matter, connect with our team today at (612) 337-2470.