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It isn’t often that mechanic’s lien claims get mentioned in the regular press. Nevertheless, Los Angeles Times reporter Lew Sichelman had to do his mechanic’s lien research for an article earlier last month in “Lenders, title insurers find new ways to delay or kill mortgages.”
The article reports that title companies and lenders are becoming more cautious about issuing construction loans because of potential mechanic’s lien disputes. Since “contractors, subcontractors and suppliers can file liens retroactively to the day they started” furnishing labor or materials and that date may be before the loan is closed, Mr. Sichelman writes, the lien gets position over the loan.
This, of course, is a standard Lien Priority issue.
As mentioned in the article, California allows mechanic’s lien claimants to get lien protection retroactively to the date that construction work started on a project. That is a popular rule across the country although some states fall stricter or broader on the lien priority spectrum.
What does this mean for construction lending across the country? What does it mean for the fate of mechanic’s lien laws across the country? Are we seeing a tipping point here, or just a flash in the pan.
I can tell you that there is certainly a lot of back and forth in legislatures and courts about lien priority right now, and in some communities, both sides are making their cases.
This article by the Los Angeles Times, for example, is a bug in the ear of sympathetic legislators about possibly changing the California laws. After all, if homeowners can’t get loans, what is that going to do for the California economy? Elsewhere, we’ve seen recent Supreme Court rulings on this topic in Pennsylvania, Missouri and Nevada.
Obviously, the lending industry would love to think that this is a tipping point. However, it seems that the lenders are losing a lot of these battles, and the industries representing claimants are steadfast to protect their ground where they have it.
Further, it’s not a critical situation for the nation. This argument is as old as the mechanics lien laws themselves, which date back to Thomas Jefferson’s first proposal of them in Maryland. There is a constant friction between the arguments for and against mechanic’s lien priority, and these arguments will go on.
There may be a few changes here in there, but the split between the country should remain constant into the foreseeable future. Put me down, therefore, on the side that this recent focus by industry groups and news organizations is just a blip.