Virtual Underwriter

© 2020 Stewart Title Company

Underwriting Manual: VI

12.12.17

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V 1
Can the construction loan have initial priority over mechanics liens?
Yes. Under Section 258 of Chapter 12 of the U.S. Virgin Islands Code, a construction lien attaches upon the earlier of the recording of a notice of commencement or the recording of a notice of a lien. Thus, if the construction loan mortgage is recorded prior to the notice of commencement or notice of lien, the construction loan mortgage will have priority.
Will initial priority as to future disbursement be retained only if certain procedures are followed?
Pursuant to Section 1032 of Chapter 35 of the U.S. Virgin Islands Code, future advances under a construction loan mortgage have priority as of the recording of the mortgage.
If priority is lost, can it be regained?
If a notice of lien or notice of commencement was of record prior to the mortgage, it would have to be released or terminated so that the mortgage could have priority.
Is there a difference between on-site and off-site work?
No, pursuant to Section 252(a) of Chapter 12 of the U.S. Virgin Islands Code. However, under Section 255, there must be a clear intent that the materials were intended for the improvement on the particular real estate against which the lien is asserted.
Is priority the same for all contractors and subcontractors on the same project?
Yes, as stated in Section 253.
What are the time periods for recording lien claims by original contractors and subcontractors?
Pursuant to Section 264(a), the lien must be filed no later than 90 days after the final furnishing of materials or services.
After what period of time can you waive a mechanic’s lien if no suit is filed?
Pursuant to Section 271, no notice of lien is effective for more than 90 days unless an action to foreclose the lien is commenced. The lien claimant could extend that 90 day period by recording an affidavit that stated a cause of action has not accrued yet. In no case shall the lien continue in force longer than one year from the time of completion of the improvement. Pursuant to Section 272, the court in its discretion may dismiss the case if it is not brought to trial within two years after commencement of the case.
Is there a statutory procedure for affidavits of completion or notices of completion?
Pursuant to Section 262, an owner may file a notice of termination which is effective 30 days after it is filed. Once the notice of termination is filed, a lien must be recorded within 30 days or it won’t have priority as of the recording of the notice of termination. In other words, the termination doesn’t have its desired effect of terminating the notice of commencement until 30 days after it has been recorded.
Can a statutory bond terminate the mechanic’s liens as an encumbrance on the title?
Pursuant to Sections 260 and 268, a surety bond may be filed in an amount equal to 1 1/2 times the amount of the liens. Upon the recording of the bond, the real property described in the bond is released from the lien and from any action to foreclose the lien. Also, a contractor may file a payment bond prior to the commencement of work in which case only a lien of a prime (general) contractor will attach.
Can the original, general, or subcontractors by contract or waiver agreement subordinate or waive mechanic’s liens by general contractor and/or subcontractors?
There is no statutory procedure for that.
Can a bona fide purchaser or lender take free of mechanic’s liens later filed for earlier work?
Yes, but only if their deed or mortgage is recorded prior to a notice of commencement and notice of lien. Liens have priority as of the earlier of the recording of the notice of commencement or notice of lien.
What are the customary requirements for insuring Loan Policies on construction loan mortgages?
The construction loan mortgage must be recorded prior to the recording of a notice of commencement or mortgage. If the mortgage is recorded in the middle of construction, work must stop, lien waivers must be obtained from the prime contractor and all sub-contractors and suppliers. The owner and prime contractor must by affidavit disclose the identities of all of the subcontractors and suppliers in order that it may be verified that all necessary waivers have been obtained. A notice of termination must be recorded in compliance with Section 262 and the mortgage must be recorded prior to the recording of a new notice of commencement.
Is it customary to add a “pending disbursement” clause or mechanic’s lien exception in the Loan Policy insuring a construction loan mortgage?
Yes, it is customary to add a “pending disbursement” clause to a Loan Policy insuring a construction loan. If the construction loan mortgage is recorded prior to any notice of commencement or notice of lien as it should be, then any resulting notices of liens would be subordinate to the insured construction loan mortgage. The use of PDCX08 is acceptable and customary.
October 3, 2017 (Revised February 20, 2019)