Mechanic’s Lien Coverage Requires Underwriter Approval.

Priority

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

Yes. Louisiana Statutes Annotated-Revised Statutes (LSA-R.S.) 9:4820(C) A person acquiring or intending to acquire a mortgage, privilege, or other right, in or on an immovable may conclusively rely upon an affidavit made by a registered or certified engineer or surveyor, licensed architect, or building inspector employed by the city or parish or by a lending institution chartered under federal or state law, that states he inspected the immovable at a specified time and work had not then been commenced nor materials placed at its site, provided the affidavit is filed within four business days after the execution of the affidavit, and the mortgage, privilege, or other document creating the right is filed before or within four business days of the filing of the affidavit. The correctness of the facts recited in the affidavit may not be controverted to affect the priority of the rights of the person to whom or for whom it is given, unless actual fraud by such person is proven. A person who gives a false or fraudulent affidavit shall be responsible for any loss or damage suffered by any person whose rights are adversely affected. (D) A person acquiring or intending to acquire a mortgage, privilege, or other right under subsection C of this Section shall have priority in accordance with R.S. 9:4821, regardless of whether work has begun or materials were delivered to the job site after the effective date and time of the affidavit, but prior to the recordation of the mortgage, privilege, or other right provided that the document creating the right was filed before or within four business days of the filing of the affidavit.

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

Filing is all that is required. Louisiana Civil Code ("LA C.C.") Art. 3298(B) provides "As to all obligations, present and future, secured by the mortgage, notwithstanding the nature of such obligations or the date they arise, the mortgage has effect between the parties from the time the mortgage is established and as to third persons from the time the contract of mortgage is filed for registry."

If priority is lost, can it be regained?

Yes; see "Time Limits" below.

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

Both are entitled to privilege (Mechanic Lien); see "Time Limits", below.

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

The privileges granted by 9:4801 and 4802 rank among themselves and as to other mortgages and privileges in the following order of priority: (1) Ad valorem taxes, (2) Privileges granted by 9:4801(2) (laborers or employees of the owner, for the price of the work performed at the immovable, generally (a.k.a. real property generally) and 9:4802(A)(2) (laborers or employees of the contractor or a subcontractor, for the price of the work performed at the site of the immovable), rank next and equally with each other. (3) Bona fide mortgages or vendor's privileges that are effective as to third persons before the privileges granted by the "mechanic lien" statutes are effective and rank next and in accordance with their respective rank as to each other.

Privileges granted by 9:4801(3); 9:4801(4) and 9:4802(A)(1), 9:4802(A)(3); and 9:4802(A)(4) rank next and equally with each other. Privileges granted by 9:4801(1) and 9:4801(5) rank next and equally with each other.

Other mortgages or privileges rank next and in accordance with their respective rank as to each other.

If mortgage priority is lost because work has begun prior to the filings outlined above, it cannot be regained unless all work is terminated, the filing of a proper notice of termination, the lien period maximum of 70 days is passed, clear lien and privilege certificates are obtained, and the notice of termination is cancelled.  This procedure would, in effect, terminate the old contracts, and allow for the commencement of a new work, with a new affidavit of “no work.”

Time Limits

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

Under LSA-R.S. 9:4811, if a notice of contract is timely filed (as provided in 9:4831), before the contractor begins work, (as defined in 9:4820), the person to whom a claim or privilege is granted by 9:4802 (Subcontractors, laborers or employees of the contractor or subcontractor, sellers of movable(a.k.a. personal property-generally) to the contractor or subcontractor which become component parts of the immovable, lessors of movables used at the site, prime consultant registered or certified surveyors or engineers, or licensed architects, or their professional subconsultants) shall have 30 days to file a statement of claim or privilege from the filing of Notice of Termination or substantial completion or abandonment of the work. 9:4822(A)

A General Contractor to whom a privilege is granted under 9:4801, and whose privilege has been preserved according to 9:4811, shall file a statement of his privilege within 60 days of filing of Notice of Termination or substantial completion or abandonment of the work. 9:4822(B).

Those persons granted a claim and privilege by 9:4802, for work arising out of a general contract, notice of which is not filed, and other persons granted a privilege under 9:4801, shall have 60 days from filing of notice of termination, or substantial completion, or abandonment of the work, to file their claim. 9:4822(C).

The seller of movables used for use or consumption in work on an immovable for residential purposes, if a notice of contract is not filed, shall file a statement of claim or privilege within 70 days after the filing of a notice of termination, or substantial completion, or abandonment of the work. 9:4822(D)(2).

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

One year after filing of the statement of claim or privilege to preserve it unless a notice of pendency of action is filed. 9:4823(A)(2) and (E). (See answer above).

Removing or Waiving Liens

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

A Notice of Termination shall be filed in accordance with 9:4822(E), and shall be conclusive of the matters certified if made in good faith by the owner or his representative. Substantial Completion is defined in 9:4822(H). Abandonment is defined in 9:4822(I).

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

Yes. LSA-R.S. 9:4835

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

Yes. While not codified, as a matter of practice, and general contract law, liens may be waived in writing by the party entitled thereto. The waiver must only be for work after it is done.

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

No. If the lien is properly recorded, it runs with the property.

Title Company Requirements

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

Recording of the mortgage before commencement of construction and receipt of "No Work Affidavit" and "Approved Sellers/Owners Affidavit".

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

A standard mechanic's lien exception and pending disbursement clause would be used.

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

Updated 12/8/16