Consequences of Recording a Notice of Commencement

The Florida Construction Lien Statute (commonly referred to as the “mechanics’ lien law”), can be found in Chapter 713 of the Florida Statutes, Part 1. For purposes of this blog, the focus will be on this section of the statute dealing with Notices of Commencement.  First, what is a Notice of Commencement? For brevity, Notice of Commencement will be referred to as “NofC”.  A NofC is a short document (usually a single page, but sometimes two pages), that provides notice to contractors, owners, subcontractors, material men, and laborers so each has everyone else’s notice that they’re working on the job. While the particulars of the NofC is beyond the intent of this blog, a NofC contains the name(s) of the owner(s), the owner’s contact information, the legal description of the property, the name and contact information of the contractor, and a brief description of the work to be done.

In order for a contractor (or owner) to obtain a building permit, it must have a signed NofC that is presented to the Building Department, and then has to be recorded in the Public Records of the County where the property is located.  Contrary to popular belief, the authority issuing a building permit may not require that the NofC be recorded as a condition of the application for, or processing, or issuance of, a building permit. Florida Statutes §713.135(1)(e). Prior to commencement of construction, the NofC is recorded in the Public Records and must also be posted on the job site. Construction must commence within 90 days of the recording of the NofC.

This is the point where problems most often arise.

The purpose of recording the NofC is to set the date of priority (i.e., the position of the lien for priority purposes – “first in time, first in right”). Once recorded, potential lienors and other third parties (generally subcontractors who provide labor, services, or materials to a project), have the information needed to prepare necessary notices and related documents under Florida’s mechanics’ lien statute to place owners and others on notice of any liens filed against the property. Liens of lienor’s (those who performed or furnished labor, services, or materials for the improvement of the property), relate back and attach from the date the NofC was recorded.  Accordingly, contractors are anxious to have the NofC recorded. In addition, homeowners are anxious to have construction commence – either because corrective work is necessary to complete a sale or remodeling is intended.

The important point to remember is that once a NofC is recorded, any subsequent recorded document (such as a deed or a mortgage), will be subordinate to the NofC.  This is why a NofC is supposed to be recorded after the deed and/or mortgage. If the NofC is recorded before the deed to convey the property, or the mortgage to secure financing, the NofC represents an encumbrance on title (a “cloud”), that must to be removed (i.e., a notice of termination of notice of commencement). No lender is going to close a mortgage transaction unless and until its mortgage is in first position after the deed.  A NofC cannot be subordinated, it can only be terminated and subsequently refiled after the mortgage is recorded.

While this may sound simple enough, the recording of a notice of termination of notice of commencement is not effective until “30 days after the notice of termination is recorded”.  Florida Statutes §713.132(c). Generally, what that means is that a closing cannot be held until 30 days after the notice of termination is recorded.  While there are some extremely limited circumstances where a title insurance underwriter may permit the loan policy of title insurance to be issued before the full 30 days has run, it would not be prudent to assume that such an exception is available in every or even many instances. Typically, the title insurance underwriter requires a myriad of documentation – literally too lengthy to enumerate in this blog – before it will even “consider” such an exception.

Accordingly, the moral of this story is to refrain from recording a Notice of Commencement within 30 days of a closing date.

As always, should you have any questions with regard to Notices of Commencement, or termination of Notices of Commencement, we urge you to contact one of the attorneys at Berlin Patten Ebling, or consult with your local real estate attorney, for additional guidance.

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Mark C. Hanewich,Esq., mhanewich@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

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