Construction Lien Foreclosures And Lien Priority Problems
The ability to foreclose on mechanics and construction liens is a powerful tool in ensuring that you get paid. Most creditors can lien property, but cannot foreclose—even most court judgments can’t be foreclosed on to force payment. But construction liens can.
Should You Foreclose?
But before worrying about whether you can foreclose, is the issue of whether you should foreclose when a property owner owes you money for a construction project. The reason why this is often a difficult question is because of lien priority.
As a general rule, liens attach to property in the order that they are filed or recorded, and get priority based on that order.
Let’s look at an example. Property A has a first mortgage, which has priority; having been recorded at or around the time the property was purchased. A few years later, the property owner took out a second mortgage. Then, a year after that, you filed your mechanics lien for payment based on construction work you did on the property and were never paid for.
Should you foreclose on your lien? The problem is that you are third in line. If you foreclose, the first lender will be paid what it is owed from the proceeds of the foreclosure sale, then the second lender, and then you. By the time it’s your turn, there may not be any money left. That just depends on the amount of the liens that are ahead of you, and the amount of equity in the property.
The Order Isn’t Always the Order
Making matters more complex, some liens jump to the front of the line, no matter when they were filed—for example, most tax liens get immediate priority (even over the primary lender).
If you filed a notice of commencement (NOC) properly, then with some kinds of liens, your lien will “date back” to the commencement; that means that even though you may be filing your lien later, if you have to file one, you will move ahead in the “line” to the date of the NOC, effectively leapfrogging any other liens that happened between the NOC and the time you filed your lien.
When Multiple Entities are Owed
Even within a single construction lien, there are lien priority issues. Often, a lien is not broken down into who gets paid what; the entire amount is recorded as a lien, and foreclosed on. But the law says that when that happens, laborers get paid first, then anybody other than the contractor, and lastly, the contractor.
The reason why contractors are last is that the contractor usually has a contract with the person or company that hasn’t paid; that means that they can sue and collect money, whereas laborers often don’t have that ability, and their only way to recover what is owed to them is through the lien.
Call our Fort Lauderdale construction lawyers at Sweeney Law P.A. at 954 440-3993 for help getting paid in your construction case.