2014 Utah Construction/Mechanics Lien Legislation

A committee of various construction groups, lenders and title companies met throughout the interim to address issues relating to the State Construction Registry and Utah mechanics lien/construction lien law.  As a result of these meetings there will be legislation in the 2014 General Session which will change the process for closing construction loans.

Since 2011, if a bank closed a construction loan after construction started, the bank could “buy” its way into first position by having all subcontractors and suppliers withdraw their preliminary notices, and then after the loan closed those same sub-contractors and suppliers would have 20 days to refile their preliminary notices. 

Since this was a cumbersome process the legislation which will simplify the process significantly.  The mechanism under the new legislation will simply be that once a loan is closed, it has priority as of the date the trust deed for the loan is recorded.  This priority over liens will exist only is payment is made for all work performed by contractors and suppliers before the loan is recorded.  As long as all of the work preceding the construction deed of trust gets paid, then the lender will have first position, however, if even one dollar of work performed before the construction deed of trust is recorded, then all liens for the entire project will have priority over the construction loan.

Lien priority will still be based upon the filing of the first preliminary notice and will only be subordinate to the construction loan if all work before the construction loan is paid.  Since the law does not result in a withdrawal and refiling of the preliminary notice, the lien rights of contractors and suppliers can only be subordinated to the construction loan and not to other potential interests in the property such as deeds, easements, or other non-construction loans. The amendment clearly provides that only construction loans can obtain priority over construction liens.  Home equity loans, long term finance and other financing on the property including consumer financing do not have the ability to subordinate lien rights.

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