Mechanic’s Liens Laws Between the States: Know the Differences
The Mason-Dixon Line not only is the imaginary border dividing the land of Pennsylvania and Maryland, but also often is the boundary between differences in laws. Buyers, sellers, developers, contractors and banks doing business in both states should be aware of some of the basic differences. As banks, title companies, buyers and sellers and contractors know, mechanics liens and the threat of mechanic’s liens can create uncertainty and cause problems in purchase, refinance and construction loan situations. The key difference between the treatments of mechanic’s liens in different states is when the lien attaches to the real estate. In Pennsylvania, a mechanic’s lien has priority from the date the contractor “commences construction.” From that date, the contractor has six months to file a claim and then there are certain steps to enforce the lien. This creates problems for title insurance agencies insuring title to the property because of the uncertainty in determining whether every contractor who has done work in the last six months has been paid. For loan policies, Pennsylvania has enacted laws to protect banks. The state created exceptions to the priority of a mechanic’s lien for purchase-money mortgages and “open-end” construction mortgages. However, there is still an issue for owner’s policies where the seller built the building being sold or did substantial renovations in the six months prior to the sale. For example, if I buy from you and you stiffed workers, the contractor can still file a mechanic’s liens on my house after closing. In this case, title companies need to obtain lien waivers, construction budgets, proof of payment and indemnities from sellers and general contractors. But in Maryland and other states, the lien has priority from the date the lien is filed, not when the work was done. For title insurance companies in Maryland, it is fairly easy to insure through mechanic’s liens because the title company does a title search, and if there are no liens filed before closing, it can issue insurance over mechanics lien. In Pennsylvania, it is an issue because the lien would relate to the date the work is done, not when the notice of claim is filed. Familiarity with these issues when entering into agreements of sale can make a future closing much easier. Obtaining lien releases and waivers from contractors and having construction budgets available for review can make it much easier to insure through mechanic’s liens. Also, working with a title company that understands the ins and outs of the mechanic’s lien law can make a transaction much easier on all of the parties to the transaction. Uncertainly regarding what requirements are needed to insure through mechanic’s liens can delay closing for the buyer and seller, and in some cases, cause financing approvals or settlement dates in agreements of sale to expire. If you have any questions about the differences – obvious or subtle – in the laws between Maryland and Pennsylvania, or if you know of a big difference that has caused issues for you that I didn’t write about, please feel free to reach out to me. Derek Dissinger is an associate at Barley Snyder, which has seven offices throughout central Pennsylvania and Maryland. He is licensed to practice law in both Pennsylvania and Maryland. He can be reached at firstname.lastname@example.org or at 717-553-1075.