Mechanic’s Lien Coverage Requires Underwriter Approval.

Priority

Can the Construction Loan Mortgage have initial priority over mechanic's liens?

Yes, so long as a Bill of Complaint to Establish and Enforce Mechanic's lien (Complaint) has not been filed in Circuit Court and lender has no actual knowledge of mechanic's liens claim. See RP sec. 9-102 (d) and (e).

Will initial priority as to future disbursements be retained only if certain procedures are followed?

No. The lien position of a construction Mortgage/Deed of Trust is retained over any subsequent Mechanic's liens as to the entire amount of the loan even if the note provides for the readvancement of funds repaid. See RP sec. 7-102(b). It is immaterial whether advances and readvances are obligatory or voluntary.

If priority is lost, can it be regained?

Yes, but only if lien is released, waived as to the property under examination or bonded off.

Is there a difference between on-site and off-site work?

No. However, lots in a development may be subjected to a lien on a pro rata basis for work/materials expended to install water, sewer and utility lines in the subdivision. See RP sec. 9-102 (b).

Is priority the same for all contractors and subcontractors on the same project?

Yes.

Time Limits

What are the time periods for recording lien claims by original contractors and subcontractors?

Under RP 9-104 Claimant must give notice of intent to claim lien to owner within 90 days after work in completed by that claimant. A claimant must file proceedings in the Circuit court within 180 days after the work is finished and the materials furnished. RP 9-105.

After what period of time can you waive a mechanic's liens if no suit is filed?

After 180 days under RP 9-105. RP 9-105 provided that claimant must file complaint within 180 days after completion of work or lose his right to do so under RP 9-109. if complaint IS filed, claimant has one year after filing to establish his lien and file a petition to enforce same or to execute on the bond (if any).

Removing or Waiving Liens

Is there a statutory procedure for affidavits of completion or notices of completion?

No. None needed.

Can a statutory bond terminate the mechanic's liens as an encumbrance on the title?

Yes. See RP 9-106 (c) and Maryland Rule BG-76a.

Can the original, general, or subcontractor's contract or waiver agreement subordinate or waive mechanic's liens by general contractor and/or subcontractors?

No. RP 9-113 prohibits and renders void any contract provisions which (a) waives right to claim a mechanic's liens or to sue on a bond in substitution thereof and or (b) conditions payment of subcontractor by general contractor on payment of to general contractor by owner.

Can a bona fide purchaser or bona fide lender take free of mechanic's liens later filed for earlier work?

Yes. Under RP 9-106 (b) no mechanic's liens arises until established by a final or interlocutory order of Circuit Court after notice and show cause/hearing. This corresponds to RP sec. 9-102 (d) which provides that a bond fide purchaser (generally understood in Maryland to include a bona fide lender) taking title prior to establishment of the lien takes free and clear of same. Thus notice of any kind stands to defeat the priority of the purchaser/lender. This concept is reinforced by RP sec. 9-102 (e) which indicates that once a Complaint is filed a purchaser/lender is on notice and cannot be a bona fide purchaser or lender.

NOTE: In case of a sale, Maryland applies doctrine of equitable conversion. Bona fide purchaser (contract vendee) for value without notice takes free of any mechanic's liens established pursuant to complaint filed against vendor after execution of contract of sale. See Himmighoefer v. Medallion Industries 487 A2d 282 (1985).

Title Company Requirements

What are the customary requirements for issuing Loan Policies on construction loan mortgages?

Run record owners back at least three (3) years in Civil docket for filing of Complaint.

Is it customary to add a "pending disbursement" clause or mechanic's liens exception in the Loan Policy insuring a construction loan mortgage?

No. Such clauses are not needed. Under RP 7-102 (b) priority of any Mortgage or Deed of Trust which secures future advances and readvance dates from its effective date as against the rights of others, including Mechanic's liens Claimants, regardless of whether they are obligatory or voluntary.

Also subject to any bulletins relating to mechanic’s liens.