Lien Priority goes Hand-in-Hand with the Notice of Commencement

As a contractor (or subcontractor if a payment bond is not furnished by the contractor) you always want to make sure (1) there is a notice of commencement that was recorded for the job and (2) you are working under an effective notice of commencement.  Why?  Because if you are not paid, you will want to lien (and you should be preserving any lien rights you may otherwise have).  The lien allows you to secure your nonpayment against the real property.  This means your lien is only as good as the equity in the property and the priority of the lien.  An effective notice of commencement allows your lien to relate back to the date the notice of commencement was recorded.

Conversely, as an owner, there are times you want to terminate the notice of commencement.  Perhaps the job is completed and the notice of commencement is still in effect and you want to cut off lien priority rights.  Perhaps you want to convert your construction loan into a permanent loan.  Perhaps you want to re-finance.  Perhaps you want to secure a construction loan during construction.  Any one of these factors will support recording a notice of termination of the notice of commencement.  When you borrow money from a lender, a lender will typically want their mortgage to be first priority.  This means the mortgage cannot be recorded after an effective notice of commencement otherwise potential liens can take priority over the mortgage.  Not a good idea from a lender’s standpoint.  For more information on terminating a notice of commencement, check out this article.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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