A Nebraska Notice of Commencement is an optional step for private property owners to take to protect themselves from liability. Generally speaking, a Notice of Commencement is designed to signal the official start of a construction project and provides all the pertinent information needed for preliminary notices. However, in Nebraska, the recording of the notice can provide property owners with other advantages to reduce risk. Let’s take a look at how.
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Nebraska Notice of Commencement basics
This seemingly simple document has a ton of implications for payment rights and protection in the state of Nebraska. The relevant statutes governing this notice are Neb. Rev. Stat. §§52-145 and 146. Recording a Nebraska Notice of Commencement isn’t required, but every property owner should do so. Unlike these notices in other states, in Nebraska these notices offer additional advantages to owners. Not only does it ensure that the property’s deed of trust has priority over any subsequently filed liens, but it also allows them to limit the property subject to liens to the portion that is actually being improved.
Recording a Nebraska Notice of Commencement
A Nebraska Notice of Commencement is typically recorded with the county recorder where the project is located, by the property owner at the outset of the project. It can also be recorded by a lien claimant, but we’ll cover that soon. This document must include a legal description of the property, name and address of the owner, and a statement that any mechanics liens filed will have priority from the time the notice is filed.
A Notice of Commencement is effective once it’s recorded, and will remain so until it lapses. Owners can determine the length of validity, which can be no less than 6 months, or 1 year if no duration is listed. One interesting aspect of Nebraska Notices of Commencement is that the owner can limit the portion of the property that a subsequent mechanics lien will attach to. This is a huge benefit to property owners to limit the amount of exposure and liability their property will have.
As we hinted to above, if there is no notice recorded on a project, a potential lien claimant can take it upon themselves and record one. This type of recording requires a few additional pieces of information; such as their hiring party information and a description of the services provided. Once recorded, the claimant must send a copy of the notice to the property owner by certified mail on the same day. If they fail to do so, the can open up the lien claimant to personal liability for any damages caused by the failure to do so.
Why a Nebraska Notice of Commencement is so important
Determines the real estate affected by mechanics liens
When an owner files a Notice of Commencement, they have the option to limit the notice to solely the part of the real estate that is being improved. This is one of the main advantages afforded to owners who file this notice ahead of time. That’s because this allows them to limit the “lien liability” to just the value of the portion of the property that is actually being improved. Failing to do so, or failing to limit the notice to certain portions of the property exposes the entire real estate to liability.
Since a lien claimant can record a Notice of Commencement on their own, there is a legal mechanism to make sure they don’t abuse this privilege. If they, in bad faith, overstate the portion of the property being improved, or simply include the entire property, they risk losing all of their lien rights associated with the project.
Determines mechanics lien priority
We are firm believers that mechanics liens are effective on their own to secure payment, without having to resort to foreclosure. However, sometimes the money just isn’t there. When a property is sold through foreclosure, there’s only so much money to go around. And, depending on your priority, there might not be any pieces of the pie left to go around. A Nebraska Notice of Commencement is an important factor in determining priority. It not only protects the priority of the deed of trust but also determines priority of any subsequent mechanics liens.
The best way to explain how lien priority is affected, consider these 3 different scenarios.
- Scenario 1: There’s an effective Notice of Commencement recorded, and a mechanics lien is filed; the mechanics lien is treated as attached at the time the notice is recorded.
- Scenario 2: There’s no Notice of Commencement recorded, a filed mechanics lien will attach at the earlier of either: visible commencement of work on the property, or the recording of the mechanics lien.
- Scenario 3: A claimant files a lien and also records a Notice of Commencement, then attachment of their lien will be the same as anyone who subsequently files a lien. This scenario is so regulated to avoid a lien claimant from abusing the process and achieving priority over others who had already filed a lien beforehand.
As you can see, this notice can have a serious impact on the ability of lien claimants to recover the money they’ve earned. Property owners and contractors alike should familiarize themselves with this notice.
Recording a notice of termination
An owner can decide to eliminate the Notice of Commencement in whole, or in part to the property subject to the notice. This is achieved by recording a Notice of Termination in the same office the Notice of Commencement was filed.
Partial termination is also an available option for property owners. Since lien claimants can file a Notice of Commencement on their own, they may have included the entire property. An owner can file a notice of termination to just a portion of the real estate they wish to remove. This won’t affect any liens already filed, but any additional liens attached to the property will be limited to the reduced property description
Responsibilities when recording a notice of termination
First and foremost, the notice itself must include an effective date of termination. This date can’t be earlier than 30 days after the notice of termination was recorded. Next, owners are required to send a copy of the notice to every claimant who requested notification in their preliminary notices. This must be done at least 3 weeks before the effective date of termination. In addition to that, the notice of termination must also be published in a newspaper as well for three consecutive weeks.
Personal liability for early recording
Under Neb. Rev. Stat. §52-156, an owner can get into some treacherous waters for recording a notice of termination too early. If a notice of termination is recorded before abandonment or substantial completion of the improvements covered by the Notice of Commencement, they could be exposing themselves to more liability. Specifically, the owner opens themselves up to personal liability for any lien claimant that was unable to secure a lien because of the early recording.
A Nebraska Notice of Commencement is a valuable asset for property owners. These can help limit liability and have a significant impact on the priority of mechanics liens. Although not required, there’s no reason why a property owner should file one. Given the nature of the construction payment chain, owners take on a fair amount of liability. Any steps that can be taken to reduce risk on a construction project should be taken.