Sweeping Changes Made to Iowa's Mechanic's Lien Statute
On April 27, 2012, Governor Branstad signed legislation making sweeping changes to Iowa’s Mechanic’s Lien Statute. The law is largely a response to problems experienced during the recent economic down-turn which triggered a crush of lien filings and subsequent priority disputes. Under the existing law, if a lender extends a construction loan and records a mortgage after the date the contractor commences work, the mortgage may be junior to mechanic’s liens even though the public record provided no notice of such lien rights at the time the mortgage was filed. This scenario has provided some benefit to contractors but such benefit often has been outweighed by the costs of litigating and protecting lien priorities based on fact-intensive questions such as when work commenced and at whose direction.
Effective January 1, 2013, the new law re-writes the priority and perfection provisions of the statute. It creates a centralized computer construction registry which will be operated and maintained by the Iowa Secretary of State. This system for perfecting liens is similar in concept to the current UCC filing system maintained by the Secretary of State for personal property financing statements. While the system for locating lien information will be familiar to most lenders, the method of filing will be new territory for many contractors accustomed to filing with the Clerk of Court for the county in which the property is located.
In addition, the new law imposes a pre-commencement notification requirement for residential projects. The general contractor must file a “Notice of Commencement” within ten (10) days of commencing work. The preliminary filing is a pre-condition to the lien filing and will now serve as the priority date for mechanic’s liens on residential properties. This notice requirement eliminates the problem with unrecorded liens relating back to the commencement date of the work. The notice requirement, however, does not apply to commercial construction. Therefore, commercial contractors may continue to file liens even if the contractor has provided no record notice of commencement of work.