YES, LIEN PRIORITY IS IMPORTANT

UnknownWhen a construction lender forecloses, a lienor (e.g., contractor, subcontractor, supplier) is in a bad predicament because the lender’s mortgage will maintain priority over the lienor’s construction lien. The lienor would be named in the lender’s lawsuit (provided a lien has been recorded) because the lender will look to foreclose or wipe out the lienor’s inferior construction lien

 

From a real-world standpoint, if there is not enough equity in the real property to satisfy the lender’s mortgage / loan, there is not going to be any surplus from a foreclosure sale to satisfy the inferior construction lien(s).  Since a lien really is only as good as the equity in the real property being liened, if there is not any equity in the real property and/or the construction lender is foreclosing, pursuing the lien may be an exercise in futility.

 

Sometimes, due to the lack of equity in the real property at the time of the foreclosure, the lender will file the foreclosure lawsuit but delay in prosecuting the action.  One reason is that the lender knows the owner is under water and hopes the value in the property increases down the road.  The lender knows that it will ultimately take possession of the real property but at the time of the foreclosure the value of the property is much less than the amount owed under the loan. 

 

Unfortunately, irrespective of any delay by the lender in prosecuting the foreclosure, the lender’s interest in the real property will always take priority.  There is little the lienor can do to establish that its lien should jump priority over the lender’s mortgage.  This point was confirmed in the non-construction case U.S. Bank National Association v. Farhood, 39 Fla. L. Weekly D12594a (Fla. 1st DCA 2014), where the appellate court claimed that it was error for a trial court to sanction a lender in a mortgage foreclosure lawsuit for dilatory practices by deeming that a condominium association’s lien on a unit for unpaid assessments took priority over the mortgage.

 

So, yes, the priority of your construction lien is important and should always be a consideration in a lien foreclosure action.

 

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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