Title tip – How to establish Priority

This is a continuation of the title tip from last week.  We discussed the need to establish priority (get the mortgage recorded) before ANY labor or materials are delivered to the site.  In this Title Tip, we will discuss “How to establish priority“.)

To be able to prove priority, it is important that we have the proper documentation in place.  This means that we must follow these steps:

  1. At closing (prior to signing the mortgage) we verify with the owner and builder that NO labor or materials have been delivered to the project site.
  2. After confirming this, we proceed with the closing.
  3. Once the mortgage is signed, we deliver the mortgage to the county and wait to get recording information for the mortgage.
      • Where permitted, we walk this through the county offices and get this information on the same business day, or the next business day.
  4. We drive to the construction site and take pictures.  These pictures would show that no work has been done to the site and no materials have been delivered.
  5. We sign an affidavit that confirms the date and time of the photos – and that no work was showing as completed.
  6. Then we can contact the lender, owner and builder and let them know that it is O.K. to proceed with construction.

Note, if we get to the construction site in Step 4 above and labor or materials are showing on the site, we must STOP the entire process.  We can no longer guarantee priority for the mortgage – and thus we can no longer insure it.  We will not disburse any funds from this mortgage.

Per Minnesota statute, the only allowable work that can be showing on the site that will NOT affect the priority of the mortgage is soil borings and/or survey stakes.  Even land clearing by the owner of the property can present a problem.  Often the owner feels that if they are doing the work themselves, it doesn’t count (example:  chain saw/clearing work, bobcat work etc).  This is not a correct assumption. Another misconception is that if the owner has hired work done, and paid for the work out of their own personal funds, that this doesn’t count either.  This is also not correct.

Minnesota statute is quite clear on this – ANY visible labor or materials showing on the property will result in loss of priority of the mortgage.  So please inform your customers and friends who are looking at a spring building project.  Although everyone is anxious for the warmer weather and the new building season, getting started on your project before the necessary steps have been completed is a mistake.  It can put the project and the mortgage at risk.

Disclaimer – this information is NOT legal or financial advice, and should not be used as a substitute for the same.  It is offered for informational purposes only.  Many different factors can influence the proper course of action for a particular situation.  Please seek the advice of a qualified professional for guidance with your specific transaction.