NY Lien Law § 22; When is a Loan Agreement a Building Loan Contract for purposes of the statute.

Although the court sometimes incorrectly interchanged the terms “Filed” and “Recorded” in its opinion, the message was clear. If it quacks like a duck, looks like a duck and walks like a duck, it must be a duck. In this case, the court examined the language and intent of the Loan Agreement between the Mortgagee and Mortgagor and determined that is was close enough to the statutory definition of a Building Loan Contract that it should have been filed by the lender to protect advances pursuant to the terms of the Agreement from intervening mechanics’ liens.

Plaintiff commenced a foreclosure action after defendant borrowers defaulted under the terms of a Loan Agreement. Three defendant contractors moved for summary judgment on the priority of their mechanics’ liens. The defendant contractors argued, first, that plaintiff’s mortgage was subordinate to their mechanics’ liens because the loan agreement had not been filed as required under Lien Law § 22.

Under this statute, a ―building loan contract either with or without the sale of land must be filed in the county clerk’s office, and if the loan contract is not properly filed, it is subject to the lien and claim of a person who shall thereafter file a notice of lien. The court held that the plaintiff’s mortgage constituted a building loan contract as defined by Lien Law § 2(13) because: (1) the loan agreement was between a lender and the owner of real property; (2) in the agreement, the owner made an express promise to make improvements on the property; (3) the lender was to be kept apprised of construction progress; and (4) the agreement itself contemplated that the $10,000,000 project loan would be secured by a mortgage on real property. Because the mortgage was not filed as a building loan contract, the court held that it was subordinate to the defendants’ mechanics’ liens.

The defendant contractors next disputed the priority of liens among themselves. The court found that the subcontractor’s lien was superior to that of the general contractor defendant. And even though the remaining contractor claimed its lien should be superior to all others pursuant to Lien Law § 13 because it had performed labor, the court rejected this claim on the ground that there was no evidence that the lien was for daily or weekly wages of laborers. Altshuler Shaham Provident Funds, Ltd v. GLM Tower LLC, Supreme Court, County of Onondaga, Index. No. 9348/2008, 5/17/10 (Karalunas, J.).