Does Preparatory Site Work, Such as Clearing or Grading, Constitute Commencement of Construction for Purposes of Lien Priority?

02/18/2015

The Dangers of Failing to File a Notice of Lending and When a Contractor’s Mechanic’s Lien Takes Priority Over a Construction Loan Mortgage

From a construction lender’s perspective, intuition would say that a subcontractor’s lien rights would never take priority over those of the lender unless and until general construction on a project site had visibly begun. This is because, until the Great Recession, for purposes of determining when a mechanic’s lien attaches and priority can be established, the majority of jurisdictions had interpreted their respective statutory definition of the “date of commencement” to be the date when materials are, or labor is, first provided by a contractor or subcontractor for the visible improvement of the subject property: Simply put, the majority of jurisdictions had previously viewed site preparation work—such as site demolition, clearing, pit testing, and grading—as non-“visible improvements” with the result that the contractor’s or subcontractor’s mechanic’s lien rights for such work would always be junior to, and not take priority over, the lien rights of a construction lender since such activity, by its very definition, fails to constitute visible commencement of “actual, on-site construction” and improvement of the subject property. Relying on such history, construction lenders rarely saw a need to file or record a Notice of Lending or a security instrument prior to its borrower’s commencement of actual general, on-site construction work.

To read the full article, click on the PDF linked below.

Does-Preparatory-Site-Work-Constitute-Commencement-of-Construction.pdf

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