Anyone working in the construction industry knows, that a mechanics lien is an incredibly powerful tool to help you get paid. It grants the claimant an interest in the property. If payment isn’t made, the claimant can force the foreclosure of the property to pay off the debt. But the priority of your claim will ultimately decide if the foreclosure is even worth it. The Florida Court of Appeals recently decided a case where a subcontractor’s lien priority was intact, even though it was based on a defective Notice of Commencement.
Mechanics lien priority in Florida
The priority of your lien claim is an important aspect to keep in mind. During a foreclosure, anyone with a claim against the property must “get in line” to get paid. If you’re at the front of the priority line, your claim will get paid first. If your claim is a low priority, there may not be much money left to pay your debt.
The priority of Florida mechanics liens are governed by the state’s mechanics lien law. Mechanics lien claims in Florida will typically relate back to when the Notice of Commencement was filed. Under this statute,
(2) Liens… shall attach and take priority as of the time of recordation of the notice of commencement, but in the event a notice of commencement is not filed, then such liens shall attach and take priority as of the time the claim of lien is recorded.
(3) All such liens shall have priority over any conveyance, encumbrance or demand not recorded against the real property prior to the time such lien attached as provided herein, but any conveyance, encumbrance or demand recorded prior to the time such lien attaches and any proceeds thereof, regardless of when disbursed, shall have priority over such liens.
This is an important aspect of lien laws that needs to be understood. Most contractors get paid by using the lien process. But when the dispute reaches the point of no return, a foreclosure may be necessary. The only problem is, if there are other creditors with an interest in the property, there might not be much money left to pay you off.
A recent case in Florida had an interesting outcome regarding a subcontractor’s lien priority. They were able to retain their priority over a mortgage, even though the NOC they relied on was technically invalid.
Florida Notice of Commencement Checklist & Lien Risk Guide for Owners
Subcontractor relies on a defective Notice of Commencement
The case in question is Edwin Taylor Corporation v. Mortgage Electronic Registration Systems, Inc. and Branch Banking and Trust Company
Project Snapshot:
- Mortgagee: Branch Banking and Trust Company and Mortgage Electronic Registration Systems, Inc (BB&T)
- General contractor: Griffin Contracting, Inc. (Griffin)
- Subcontractor: Edwin Taylor (Taylor)
At the outset of the project, Griffin executed and recorded a notice of commencement (NOC) for the project. The only issues with the NOC was that it wasn’t signed by the property owner, and there was no lender listed on the notice. The very next day BB&T recorded a mortgage and filed its own notice of commencement with them listed as the lender. It also happened to be signed by the property owner.
Subcontractor enforces their lien claim
Once the project began, Taylor sent a Notice to Owner. Later, due to payment issues, they filed a mechanics lien against the property. Payment never came, so Taylor filed a foreclosure action free from any claims, including BB&T’s.
BB&T filed a motion for summary judgment based on the argument that Griffin’s notice of commencement wasn’t valid because the property owner never signed it. Thus, instead of “relating back” to the initial NOC, it would relate back to BB&T’s NOC that was signed by the owner and recorded after the mortgage was recorded. The trial court agreed, and declared that the lien was junior in priority to BB&T’s mortgage. Taylor appealed.
Appeals court declares lien has priority over the mortgage
The issue on appeal was if the failure of the property owner to sign would render the NOC invalid. Particularly, if the invalidity would affect an otherwise valid mechanics lien claim’s priority. The court focused on the underlying purpose of a notice of commencement. An NOC is supposed to act as (a) protection for the property owner by kickstarting the statute of limitations on payment claims, and (b) “roadmap for the lienor” providing all of the relevant information for a subcontractor to secure their lien rights.
Admittedly, the statutes state that the owner must sign the NOC, and the owner has the duty to ensure the accuracy of the NOC. However, the court reasoned that the notice was signed by Griffin with the owner’s authority. Taylor had relied upon the “defective notice” and otherwise complied with all of the requirements to perfect their lien, and enforce their rights.
In its opinion, the court declared that a “lender may not use a deficient notice of commencement as a sword against a subcontractor who bears no duty to ensure the validity and accuracy of the notice of commencement.”
Allowing the trial court decision to stand would provide subs no practical way to protect itself, particularly when faced with an NOC which appeared to be regular and complete in all respects. Thus, the Court of Appeals reversed the lower court’s decision, and the subcontractor’s lien claim was granted priority over the mortgage.
The importance of a notice of commencement
This case acts as a reminder of the importance of notice of commencement in Florida. From a property owner’s perspective, they need to ensure that the information provided is as accurate as possible. Simple mistakes can render the notice invalid. But as this case demonstrates, a defective NOC may not completely destroy a lien claimant’s priority. This was an incredibly fortunate outcome for the subcontractor in this case.
Mechanics lien rights are statutory in nature, and because of that are enforced fairly strictly. However, Taylor had complied with all the requirements he was able to, and followed the statutory process to a T. This outcome won’t apply in all situations. So contractors in Florida will still need to ensure that they meet all of their requirements to secure lien rights, on every project.