Part Two: L__N - What has priority the "oa" or the "ie?
In the last post, we learned that a Properly recorded mortgage can lose its priority to a subsequently filed Mechanics Lien. How and why does this happen?
New York's Lien Law provides protection to contractors and to lenders as well, but only if the latter strictly follows the proscribed procedures. Virtually every Mortgage (and Deed) in NY contains "Section 13" language. This language is pursuant to section 13 of the Lien Law and the typical language states that if there is any outstanding invoices from work performed on the property the Borrower (or seller) will apply the funds they received from the loan (or sale) to a trustfund to cover those invoices. So why did the mortgage in last post lose priority if it had section 13 langue? The answer is that Section 13 language only protects for loans that are fully funded to borrower at closing.
Section 13 language only Protects for loans that are fully funded to borrower at closing
If the loan has future advances or even if the loan contains an "express promise of an owner to make an improvement upon real property" in consideration of the loan, as decided in a recent case, then Section 13 no longer applies and you need to comply with Section 22 or risk losing priority. To comply with Section 22 and maintain priority, the Building Mortgage needs a Building Loan Agreement with a section 22 Affidavit to be filed in the county clerk prior to the recording of the Mortgage but in no case 10 days after the date of the agreement.
Building Loan Agreement must be filed at the County Clerk within 10 days and prior to the recording of the Mortgage
Had the loan in the last post had a properly filed BLA with section 22 affidavit, they would have kept their priority. The courts do not give a lender much, or any leeway, if they fail to comply fully with Section 22 so it is imperative that any loan that is not fully funded, or even contains language that there will be improvements, comply with section 22.