PRIVATE WORKS ACT
This month’s article is presented by:
Randy Olson, Attorney at Law
1819 W. Pinhook Road, Suite 114 Lafayette, LA 70508
The Private Works Act (the “Act”) is an important piece of legislation for title attorneys to know and understand. Codified in Louisiana Revised Statute § 9:4801, et seq., the Act provides contractors, subcontractors, and material providers of “private works” the right to file liens on the project in order to protect their ability to get paid for the work performed on the job. During my career, I have found that more title attorneys than I’d like to admit don’t fully comprehend how the Act can affect their clients – i.e., the lender and the purchaser. We as title examiners must be concerned about the Act on all closings involving new construction.
Let’s first take a look at the new construction loan. The lender will want its mortgage in first lien position. In order to accomplish this, no “work” can have started on the project before recording the mortgage. Revised Statute § 9:4808(A) defines “work” as a “continuous project for the improvement, construction, erection, reconstruction, modification, repair, demolition, or other physical change of an immovable or its component parts.” I get several calls a year asking what does and doesn’t constitute “work” under the Act. Common questions regard putting up power poles, cutting down trees, or doing the dirt work. Revised Statute § 9:4808(C) gives some guidance on that issue. You should know that some “preparatory work” will not create a privilege under the Act such as the “clearing, leveling, grading, test piling, cutting or removal of trees and debris, placing of fill dirt, leveling of the land surface, [and] demolition of existing structures.”, as long as this work is not part of the total construction contract.
Generally, the Act does not apply to work that is not a part of the contractor’s work for the erection of the building or other construction. The most common method of determining that no “work” has commenced is the filing of a “No Work Affidavit” signed by an engineer/surveyor, architect, or building inspector employed by the city or lending institution. To be effective, Revised Statute § 9:4820(C) provides that this Affidavit must be filed within 4 business days after its execution, and then the mortgage or other privilege must be filed within 4 business days of this Affidavit’s filing.
Also, title attorneys should advise their lenders on the impact of commencing “work” before recording the mortgage. Many lenders mistakenly believe that the Private Works lien is only in favor of those contractors and material providers that commence work before the mortgage is recorded. And if that were the case, then all we’d need to do is make sure those pre-mortgage workers get paid and sign lien waivers. But that is not the case! Once “work” begins, ALL contractors and material providers for the remainder of the job will have lien rights that will prime the mortgage. Their lien rights are retroactive to the commencement of “work.” If you are issuing title insurance where “work” started before recording the mortgage (and it happens fairly often), you will need to get specific underwriter authority to give the lien coverage, which can be difficult to get because of the risk.
Although I’ve had lenders decline it, most lenders will want lien coverage on new construction loans. If so, then you either have to delete the lien exception in Schedule B of the policy or issue an endorsement granting the coverage. There is additional premium associated with granting such coverage.
In addition to new construction closings, title attorneys need to consider the Act when closing on a newly completed home or building during the lien period. This lien period varies depending on whether a Building Contract or Notice of Building Contract is properly recorded in accordance with Revised Statute § 9:4811. If the contract is properly recorded, Revised Statute § 9:4822 provides that the general contractors have 60 days after the filing of a notice of termination of the work to file their lien. And other persons (subcontractors, material providers, etc.) to whom a claim or privilege is granted by the Act have 30 days to file their lien.
If the contract is not recorded, those persons granted a claim or privilege (except general contractors) must file their lien within 60 days after filing of a notice of termination of the work or, if a notice of termination is not filed, within 60 days of the substantial completion or abandonment of the work. And sellers of movables sold and consumed in the work on an immovable for residential purposes have 70 days to file their liens. General contractors lose their right to file a lien when the contract is not recorded – a fact that many general contractors don’t realize.
Title agents should charge the additional premium for Mechanics and Materialman’s (“M&M”) coverage when closing during the lien periods discussed herein. I have discovered that this practice is not uniform among title agents in our community even though all Underwriters have this premium filed with the Commissioner of Insurance. Closing attorneys need to know that they are granting the lender affirmative lien coverage when issuing a short form title policy. Therefore, you should charge for it when closing during the lien period.
A constant problem I have with charging for M&M coverage is that lenders are not including this cost in their Loan Estimate, and it creates a tolerance issue at the time of closing. Therefore, it is incumbent on us title attorneys to educate our lenders about lien coverage and the additional premium associated with such coverage.
There is much more to the Private Works Act than what I cover here, but I hope this article gives you some information and insight into this complex legislation.