In addition, any agreement that constitutes a „substantial“ amendment to the Construction Loan Agreement must be submitted to the County Clerk within ten (10) days of such amendment. Examples of significant changes include, but are not limited to, increases in the loan amount or changes in the amount or method of payment, or the award of the construction loan agreement by the original lender to a new lender. Failure to comply with these record requirements may very well result in a lender losing the priority of its mortgage lien over a mechanic lien filed later. Such a loss of priority would apply to advances on the construction loan made before and after the registration of a mechanic`s lien. i N.Y. Link § 22.ii Id.; Parties to a construction loan agreement and those contemplating a change should consult with their attorney and title company about the implications of filing or amending a loan notice pursuant to the New York Lien Act § 73.iii MLF3 Airitan LLC v. 2338 Second Ave. Mazal LLC, 55 Misc.3d 241, 247, 45 N.Y.S.3d 759, 766 (N.Y. Sup. 2016).iv Id.v See id.vi Id. at 768.vii Id. (delimited by Yankee Bank for Fin.
& Sav., FSB v. Task Assoc., Inc., 731 F.Supp. 64 [N.D.N.Y.1990]); See also Howard Sav. Bank v. Lefcon Partnership, 209 A.D.2d 473, 475, 618 N.Y.S.2d 910 (2d Dept.1994). If a construction project is encumbered with mechanical privilege claims and money becomes scarce, the topic of „pawn priority“ can suddenly become very important. Each State has a method of assessing privileges and paying privileges. These methods usually play not only the mechanics` lien claims against each other, but also against the lenders who provide funds for the project. The Court of Appeal rejected the lenders` attempt to circumvent section 22 by arguing over how to classify the loans and their amendments.
There was a loan that met the definition of a „construction loan agreement“ and, therefore, lenders had to submit it and any amendments in strict accordance with § 22. Otherwise, the construction loan agreement was subordinated to the mechanics` pledge claims. As a result, lenders and borrowers do not know at the time of this letter how to amend construction loan agreements and what collateral, if any, is available if the requirements of Section 22 of the New York Lien cannot be met. Officials in New York have not yet provided guidance on a possible exemption from the 10-day period under article 22, and there has been no indication as to whether certain closed offices will be reopened in any way to process such filings. In addition, securities companies may not be able to provide a workaround to protect lenders. Altschuler Shaham Provident Funds, Ltd. v. GML Tower, LLC, 2013 NY Slip OP 04273 (June 11, 2013) was a „mortgage foreclosure lawsuit arising from a failed redevelopment of the Syracuse Hotel, a complex in downtown Syracuse, New York.“ Id. at p. 1. The Court of Appeal considered a dispute over conflicting priority claims between „a construction loan mortgage that is the subject of an unfiled construction loan agreement [and] that subsequently submitted mechanic liens [.]“.
Id. at p. 4. The closure of the offices of local recorders and county clerks as a result of COVID-19 and the prospect of future closures are having a profound impact on commercial real estate transactions. This is especially true in New York, where closures prevent the filing of mechanical liens and construction loan contracts and, in some cases, prevent the start of new construction projects. Given the special record-keeping requirements of the New York Lien Act, at this time, any New York construction loan that is a newly issued loan or a „substantially“ modified loan is vulnerable to additional requirements, delays, or complications related to the issuance of title insurance. From the lender`s perspective, all of these record-keeping issues need to be discussed and resolved with the securities company on a case-by-case basis to ensure that the loan is completed with the required title insurance and that the lender`s priority over the lender`s lien on the mortgage property is not compromised. First, this classification rule applies only to „construction loan agreements“. Article 2(13) of the privilege defines that concept as follows: `a contract in which [a lender], taking into account the express promise of an owner to make an improvement to immovable property, agrees to make advances to or on behalf of that owner in order to be secured by a mortgage on that immovable property`. The section makes construction loan contracts conditional on mechanics` claims of lien if certain conditions are not met, but the same rule does not apply to standard mortgages. Simply put, the law establishes a „First to File“ rule where the claim filed first takes precedence. If a construction lender complies with the law and files the appropriate documents when the loan is closed and mechanical lien claims are subsequently filed, the lender`s lien will prevail over lien claims.
Otherwise, however, mechanical lien claims will exceed the lender`s privilege. In particular, pursuant to section 22 of the N.Y. Lien, for a construction loan mortgage to take precedence over the privileges of the subsequent mechanic, the construction loan agreement and a related affidavit listing the costs to be paid by the borrower from the proceeds of the construction loan must first be „submitted“ to the county clerk`s office in the county where the pledged property is located. This presentation of the construction loan agreement must be made no later than the date of registration of the construction loan mortgage. .