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Generally speaking, a mechanic’s lien attaches to the property owner’s entire interest in the property – both the land, and the structure/improvement. In fact, N.D. Cent. Code, § 35-27-19 defines the land subject to a construction lien as follows:
The entire land upon which any building, structure, or other improvement is situated, or to improve which labor is done or materials furnished, including that portion of the land not covered thereby, is subject to all liens created under this chapter to the extent of all the right, title, and interest of the owner for whose immediate use or benefit the labor was done or materials furnished.
In North Dakota, however, there is another possibility. In certain circumstances, and under certain conditions, a lien claimant in North Dakota may have an additional lien on solely the structure itself. N.D. Cent. Code, § 35-27-21 sets forth the limited circumstances in which this additional lien is allowed: 1) the labor and/or material was furnished “in the erection or construction of an original, complete, and independent building, structure, or improvement”; 2) “at the time the material is furnished for such improvement, the seller shall notified the purchaser by delivering to the purchaser a written notice stating that the seller claims the right to foreclose the lien under the laws of the state, and in the event that there is a default in payment for the improvement, to remove the building from the real estate upon which it is placed regardless of whether or not said building is placed upon a foundation”.
So, if a lien claimant provides labor and/or materials for the construction of a brand new structure, and gives the property owner notice at the time of first furnishing the labor and/or materials – he has this additional lien right.
Why would a lien claimant want this particular additional lien right? Doesn’t a lien on the structure and the land on which it sits provide better protection than a lien on only the building? Isn’t more better?
The answer has to do with the priority of the lien. A bigger pie may not make a difference if there are more people who get to take a piece before you. While it is true that in raw numbers, a lien on the structure and the land liens more value, the value to the lien claimant may actually be less. That is because the lien on solely the new structure has different priority rules. The lien described by N.D. Cent. Code, § 35-27-21 “attaches to the building or improvement in preference to any prior title, claim, lien, encumbrance, or mortgage upon the land upon which the building, erection, or improvement is erected.” This means that no matter what encumbrance may already be clouding the land itself, the lien on only the structure has priority, as regards the structure. So, upon foreclosure, the structure itself could be removed and sold (whether or not it is on a foundation) to satisfy the lien claimant in preference to liens on the land that were recorded earlier.
This is a neat trick available in North Dakota, and potential lien claimants would be well-served to remember it, and send the proper notice when working on a brand new structure.