Concepts Definitions

Construction Loan (Interim Loan): A type of short-term loan specifically designed to finance the construction or development of a property. These loans often have higher interest rates than permanent mortgages.

Mechanic’s Lien: A legal claim placed on a property by an unpaid contractor, subcontractor, laborer, or material supplier for work performed or materials provided to improve the property. These liens can, in some cases, take priority over other mortgages based on the date work commenced.

Lien Period: The statutory timeframe during which a party, such as a contractor, is legally allowed to file a mechanic’s lien against a property after completing work or supplying materials. Once this period expires, the risk of new liens being filed significantly decreases.

Notice of Completion: A document that a property owner can file and record to shorten the time period within which contractors and subcontractors must file their mechanic’s liens. For a general contractor with a direct contract with the owner, the filing period can be shortened from 90 to 60 days, and for subcontractors, from 90 to 30 days.

Lender’s Risk Mitigation: Lenders involved in construction financing are concerned about mechanic’s liens because these liens can complicate or even jeopardize the lender’s priority in the event of a foreclosure. Waiting for the lien period to expire is a key strategy to ensure the lender’s loan remains in the desired priority position.

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