Bulletin: UT2011001

Dear Associates:   

This bulletin advises you of the procedures relating to the new Utah Construction Lien Law that goes into effect on August 1, 2011.  The bulletin should be read in conjunction with other National and state-specific Bulletins relating to mechanic’s liens.  (See specifically MU2010008).  The bill enacts 38-1-30.5, 38-1-31.5, 38-1-32.5, and 38-1-32.7 Utah Code Annotated.  The new law provides that:   

1) a mechanic's lien relates back to and takes effect as of the time of the first preliminary notice filing on the State Construction Registry ("SCR").  Mechanic's Liens under the new law have priority over any trust deed that attaches after the first preliminary notice filing and any trust deed which the lien holder had no notice of and which was unrecorded at the time of the first preliminary notice filing. 

2) a recorded construction trust deed has priority over each lien of a claimant who files a preliminary notice with the SCR before the trust deed is recorded if the lien claimant: 

a) accepts payment in full for the work or material provided to the project before the trust deed was recorded; AND 

b) withdraws the preliminary notice by filing a notice of withdrawal. 

3) after recording a trust deed securing a construction loan, a notice of construction loan must be "promptly" filed on the SCR. 

This law applies only to construction projects that commence on or after August 1, 2011.

NEW REQUIREMENTS.  In addition to the requirements in prior Bulletins, the following new requirements are added:  

1) On each transaction involving a construction loan trust deed the SCR must now be searched to verify that no preliminary notice has been filed.  Each agent must check the SCR at the time the commitment is issued and at the time the construction trust deed is being recorded.   If no notice is found on the SCR and there is no evidence of work on the property, the construction trust deed may be recorded.  If a preliminary notice is found on the SCR, recording may not occur until such time as the lien claimant has withdrawn the preliminary notice in accordance with the statute AND you obtain underwriter approval.  Since the new law applies only to projects commenced after August 1, 2011, an inspection of the property is still required to verify that construction was not commenced before August 1.  At this point we require such physical inspection to take place for the next 12 months (August 1, 2012). 

2) Each commitment relating to the insurance of a construction trust deed shall contain a requirement that: 

a) the SCR must be searched prior to the recording of the construction trust deed.  If the search of the SCR reveals the filing of a preliminary notice, a withdrawal of the preliminary notice must be made and proof must be obtained that the lien claimant accepted payment in full for services provided prior to the recording of the construction trust deed. 

b) a physical inspection of the land shall be made to establish that construction has not commenced or materials or supplies have not been delivered on the land prior to August 1, 2011.  If the inspection reveals that construction has commenced prior to August 1, 2011 further requirements or exceptions may be added.  

The information necessary for the Notice of Withdrawal of the Preliminary Notice can be found in UCA 38-1-5(3). 

If a search of the SCR reveals the filing of a notice of preliminary notice or notice of retention, submit the Request for Approval to Issue Overlimits (Large) Policy or Extra Hazardous Coverage form.  If such a notice is found on the SCR we cannot insure the priority of the construction trust deed until we obtain from the lien claimant a written signed statement that payment in full has been made for all construction services rendered or material provided prior to the recording of the construction loan trust deed and a notice of withdrawal of the preliminary notice is filed on the SCR.

Following the recordation of the Construction Trust Deed, under the new law, a Notice of Construction Loan must be filed in the SCR in order for the Trust Deed to have priority. As such, either the agent or the lender must file the notice on the SCR. You should obtain verification that the lender has made the filing or you should make the filing.

Pending Disbursement Clauses will continue to be part of the commitment and policy.  (See MU2010008)  Per MU2010008, a mechanic’s lien exception must be retained unless there is underwriter approval for deletion.  Underwriter approval for each construction loan shall continue to be necessary.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.