Effective Sept. 7, Pennsylvania’s Mechanics’ Lien Law was amended pursuant to Act 117, which was approved in July. The purposes of the act were twofold: to clarify and strengthen the provisions intended to subordinate mechanics’ liens to open-end mortgages securing construction loans; and to provide residential property owners with certain additional protections against mechanics’ liens that may be imposed by subcontractors.
Clarifying the Construction Loan Provision
Mechanics’ liens have always posed unique challenges for the title industry and lenders, because of the fact that the lien of such claims generally arises and obtains priority based not upon the filing of a lien, but simply upon the commencement of visible improvement to the property by the contractor. Not too long ago, then, it was standard practice in the title industry to require assurances (maybe even photos) confirming that no dirt had been turned prior to the delivery of a construction loan mortgage, in order for the title company to insure first lien priority for the mortgagee. If work had in fact commenced, a much more complex set of underwriting standards, indemnities and other measures might be required to obtain a loan policy free of a mechanics’ lien exception.
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