July 13,
2013
By: Daniel
D. Tartaglia, Esq.
In a recent decision, Altshuler
Shaham Provident Funds v. GML Tower, et al (June 11, 2013) the New York
Court of Appeals upheld the priority of mechanics' lienors over a prior recorded
mortgage that was later determined to be a building loan mortgage without the
required corresponding filed building loan agreement. The lender in this case used an unfiled "Loan
Agreement" and disbursements from a trust account to control construction
advances. Once tainted, even a later amendment to the Loan Agreement changing
the nature of the loan facility could not save it from the priority penalties and
requirements of §22 of the lien law which were initially violated by the
original Loan Agreement.
Interestingly, and despite a dissent by Justice Graffeo, the
Court permitted that portion of the mortgage advanced at closing for land acquisition
to remain superior to the mechanics' liens. This would seem to obviate the
practice of many construction lenders to split their loan into a first mortgage
(the land acquisition portion) and a subordinate mortgage for the construction
loan portion.
Here is the
link to the full decision :
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