QUICK NOTE: “EFFECTIVE” NOTICE OF COMMENCEMENT

As a contractor (or subcontractor or supplier if an unconditional payment bond is not furnished by the contractor) you always want to make sure (1) there is a notice of commencement that was recorded for the job and (2) you are working under an EFFECTIVE notice of commencement or amended notice of commencement.  An effective notice of commencement is a notice of commencement (or amended notice of commencement that amends an original notice of commencement prior to its expiration) that has not expired and allows your lien to relate back to the date the notice of commencement was originally recorded.

 

In the event you are not paid, you will want to record a construction lien to secure your nonpayment against the property and you will want your lien to relate back in time to the original notice of commencement.   When it comes to liens, a lien is typically only as good as the equity in the property oftentimes dictated by the priority of the lien.  (For example, if the property is worth $1 Million, but there is a $1.1 Million mortgage on the property, there is no equity in the property because the mortgage would have priority over the construction lien.)

 

As an owner, there may be times you want to terminate an EFFECTIVE notice of commencement.  Maybe the job is completed and the notice of commencement is still in effect and you want to cut off lien priority rights.  Maybe you want to convert your construction loan into a permanent loan.  Maybe you want to re-finance.  Maybe you want to secure a construction loan after construction commenced.  Any one of these factors will support recording a notice of termination of the notice of commencement.  When you borrow money from a lender, a lender will typically want their mortgage to be first priority.  This means the mortgage cannot be recorded after an effective notice of commencement otherwise potential liens can take priority over the mortgage.  No lender will want this to occur.

 

It is always advisable to work with counsel when it comes to notices commencement, amended notices of commencement, notices of termination of a notice of commencement, and, of course, construction liens.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Posted in Lien, Quick Note.