How to Establish Priority When Dealing with Mechanic’s Liens img

How to Establish Priority When Dealing with Mechanic’s Liens

calender icon 10/11/2022    poster icon  Mark Goodman

Many commercial title insurance claims deal with mechanic’s liens. In this article, we are going to talk about how to establish priority when dealing with mechanic’s liens in a given title insurance case.

Once construction has started on a commercial real estate project, all contractors or material suppliers have priority over a subsequently recorded mortgage from the date the first item of work started or materials were supplied by any contractor or supplier.

Establishing Priority

Because of this, a title company insuring a construction mortgage lender definitely wants to make sure to establish priority of the construction mortgage over any potential mechanics liens. In order to this this, when we are aware that there will be construction on the property, immediately after we record the construction mortgage, we will send someone out to the property to take photos of the site and provide an affidavit about what they observed in order to document the Mortgage’s priority.

Certain types of work are not considered to be the “first visible improvement”, as outlined in Minnesota Statute Section 514.05, including Survey staking, Engineering, Surveying, soil testing or ceremonial groundbreaking

If we are unable to establish the priority of the mortgage over potential mechanic’s liens because the work has started or work will start before closing, we may be able to insure the lender as if they have priority over the potential mechanic’s liens even though they, in fact, would not. This scenario is often referred to as “early start” coverage.