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Pennsylvania’s Superior Court Expands Scope of Mechanics' Lien Law

January 7, 2014

The Superior Court of Pennsylvania has recently issued a series of decisions containing novel interpretations of Pennsylvania’s Mechanics’ Lien Law (“MLL”). These decisions have a substantial impact on Pennsylvania’s title insurance, mortgage lending, construction and real estate development industries and their effect must be taken into account by title insurers, lenders, developers and contractors alike. The MLL exists in order to provide contractors and subcontractors the right to lien property if they are not paid for their labor or materials supplied to a construction project. These recent decisions greatly expand the reach and effect of the MLL and often deviate from well-established precedent.

In Bricklayers of Western Pennsylvania Combined Funds, Inc. v. Scott’s Development Co., 41 A.3d 16 (Pa. Super. 2012), the Superior Court reversed existing precedent and announced that the statutory text of the MLL is to be construed liberally. Under the pretense of liberal interpretation, the Bricklayer court held that the trustees of an employee benefit fund had standing to assert a mechanics’ lien on behalf of a union which qualified as a subcontractor because the union had entered into a collective bargaining agreement with the general contractor. The trustees thus had the right to attach a mechanic’s lien against a property because the general contractor failed to pay health, welfare, retirement and/or fringe benefits to the union.

Several months later, in Commerce Bank/Harrisburg, N.A. v. Kessler, 46 A.3d 724 (Pa. Super. 2012), the Superior Court interpreted a key provision of the MLL relevant to construction lenders. Under 49 Pa.C.S. § 1508(c)(2), there is an exception to the general rules of lien priority making mechanics' liens subordinate to open-end mortgages even if the lien pertains to work performed before recording of the mortgage as long as "the proceeds of [the mortgage] are used to pay all or part of completing erection, construction, alteration or repair of the mortgaged premises secured by the open-end mortgage."

In a decision that no doubt shocked the plaintiff bank, the Superior Court held that because some of the open-end mortgage proceeds were used to pay expenses other than exclusively for "completing erection, construction, alteration or repair of the mortgaged premises", the § 1508 lien priority exception did not apply to the entire amount of the loan, not just the portion of the principal amount which was used to pay something other than the "hard costs" of construction. Therefore, the contractor's mechanics’ lien was held to be superior to the entire mortgage.

In 2013, the Superior Court again deviated from well-established precedent by expressly rejecting the notion that a structure must exist on the subject property before a valid mechanics' lien can be filed. In B.N. Excavating, Inc. v. PBC Hollow-A, L.P., 71 A.3d 274 (Pa. Super. 2013) (en banc), a subcontractor performed excavation work in conjunction with proposed construction at the site, but no building was ever erected. Though prior case law was construed to create a bright-line rule that a mechanics' lien can never attach to land absent an erected structure, the B.N. Excavating court disagreed and held that any work performed incidental to construction or even proposed construction can sustain a mechanics' lien, even if the proposed structure is never built. The Superior Court firmly stated that the plain language of the MLL requires only that "excavation and other preliminary groundwork occur in conjunction with the erection, construction or repair of a structure rather than as an independent, unconnected improvement to the land."

For questions about mechanics' liens, either as an owner/developer, contractor or construction lender, please feel free to contact Kenneth J. Fleisher, Esq., Chair of Zarwin Baum’s Real Estate Practice Group, at 267-765-9610, kjfleisher@zarwin.com or Ryan Harmon, Esq., a partner in the Real Estate Practice Group at 267-765-9629, rdharmon@zarwin.com.

 


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