Does a subsequently-filed mechanic’s lien take priority over an improperly-filed building loan mortgage? Answer: Yes.
Altschuler Shaham Provident Funds, Ltd. v. GML Tower, LLC, 2013 NY Slip OP 04273 (June 11, 2013) was a “mortgage foreclosure action [that arose] from a failed redevelopment of the Hotel Syracuse, complex in downtown Syracuse New York.” Id. at 1. The Court of Appeals addressed a dispute about conflicting claims of priority between “a building loan mortgage made pursuant to an unfiled building loan contract [and] subsequently-filed mechanic’s liens[.]” Id. at 4.
The Court of Appeals summarized that:
“Section 22 of the Lien Law requires that a building loan contract, with or without the sale of land and before or simultaneously with the recording of a building loan mortgage made pursuant to it, must be filed in the clerk’s office of the county where the land subject to the contract is located along with a borrower’s affidavit stating the consideration paid or to be paid for the loan, any expenses incurred or to be incurred in connection with the loan, and the net sum available for the construction project.” Id. at 6.
The Court of Appeals admonished that “[s]ection 22 also mandates the filing of any subsequent modifications of a building loan contract [be made] within 10 days after their execution.” Id.
And the Court of Appeals finally concluded that “[f]ailure to comply with these filing requirements changes the ordinary priority of liens, with a properly filed mechanic’s lien taking priority over the interests of the parties to the contract [and that] a construction lender must file the building loan contract in order to achieve lien priority, or, put the opposite way, the statute imposes a so-called ‘subordination penalty’ on a lender who does not [comply].” Id. at 6-7.