Reviving Construction Projects — How to Avoid Creating a Frankenstein Monster
Lane Powell Shareholders Andrew Gabel and David Spellman co-authored an article in the January/February 2014 issue of Washington Bankers Association’s Issues and Answers magazine titled “Reviving Construction Projects — How to Avoid Creating a Frankenstein Monster.” In the article, Gabel and Spellman discussed the risks and rewards of reviving a dead or moth-balled construction project, as well as tips for eliminating, reducing or monetizing the risks early in the revival process.
1. The Relation Back of Priority for Professional Service Liens. Beware that actual notice of professional services may cause the professional services’ lien to relate back for the purpose of priority over a recorded mortgage — at least, that is what the Washington Court of Appeals has recently ruled. Normally, a recorded mortgage takes priority over unrecorded interests. Washington’s construction lien statute creates some exceptions. A design professional must normally record a Notice of Professional Services to create priority for work being performed prior to construction. But a lender’s recorded mortgage may still lose priority even when a design professional fails to record the Note of Professional Services. This occurs if the lender had actual notice of the design professional’s services. Lenders can avoid this kind of priority dispute through due diligence and by having all design professionals for the project sign a subordination agreement.