Subcontractor Lien, Construction Mortgage, and a Closing in Three Weeks
A general contractor holds a $2.4 million contract to convert a 12-unit apartment building into condominiums. The owner's construction mortgage was recorded in March; the GC recorded its notice of contract in April and began work. A framing subcontractor ($210,000 contract) walked off the job on October 3, owed $64,000 for labor and material furnished through that date, and recorded a notice of contract on October 20. The owner recorded a notice of substantial completion on November 15. The GC's October payment application has not been certified by the lender, so the GC has not paid the sub. The first condo unit is scheduled to close in three weeks, and the closing attorney's title rundown shows the sub's recorded notice.
1. Assuming the subcontractor follows the statute correctly, what must it do to preserve and enforce a lien, and what is the effect of the recorded construction mortgage on that lien?
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Perfecting the lien under MGL c.254 involves two separate recordings plus a lawsuit:
- Notice of contract - for a subcontractor, recorded within 60 days after ceasing to furnish labor or material (the GC has a longer window, but must record before the notice of substantial completion). Recorded October 20 for work ending October 3, this is timely.
- Statement of account - an itemized, signed statement recorded within 120 days after the claimant last furnished labor or material. Signature, itemization, and the correct property description are the usual failure points.
- Enforcement - a civil action to enforce the lien must be commenced within the statutory period after the statement of account is recorded, or the lien dissolves. Recording is not enforcing.
Scope and priority: the lien attaches only to the owner's interest and reaches only labor and material furnished before the notice of substantial completion was recorded on November 15 - so nothing furnished afterward is lienable.
The mortgage is the bigger issue. A construction mortgage recorded in March, before the sub's notice of contract in April, takes priority over the lien. The sub's lien is junior to the lender. Its realistic recovery is the owner's equity in the units plus a contract claim against the GC, which is why the GC's solvency and any payment bond matter more here than the lien itself.
2. The seller's attorney needs the lien off title to close in three weeks. What are the realistic mechanisms to clear title, and what does each one actually accomplish?
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Option 1 - Pay and release. Negotiate the $64,000 down (the sub has exposure too: junior lien position, litigation cost, and a 120-day/90-day clock). Pay by joint check to sub and its material suppliers, and take a signed release running to the owner, lender, and GC. Fastest and cheapest if the number is close.
Option 2 - Dissolve the lien by bond or deposit. The owner can dissolve the lien against the property by posting a surety bond (or depositing money with the court) in the amount the statute requires, then recording. This clears title immediately and moves the fight onto the bond. Costs a premium and ties up capital, but it does not require the sub's agreement.
Option 3 - Subordination agreement. Ask the sub to subordinate its lien to the condo closings unit by unit. Rarely granted without payment or a bond, because it gives away the only leverage.
Traps to flag: the GC cannot simply pay the sub and assume the owner is protected - the release must be recorded and must cover the lender's interest. And a release of lien is not a release of the contract claim; read what is being signed. With a three-week deadline, the bond route is the reliable one.
3. What should the GC have done earlier to prevent this, and what does the uncertified October payment application tell you about the payment chain?
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Prevention, in order of value:
- Conditional lien waivers with every payment, converted to unconditional on clearance, from every tier that has lien rights.
- Joint checks to subs and their key suppliers on the large trades.
- A lien/claim report or title rundown pulled monthly, not at closing. The sub's October 20 recording would have surfaced in October, not three weeks before closing.
- Written notice to the sub of any dispute and a documented reason for withholding.
Reading the payment chain: the sub went unpaid because the lender has not certified the GC's October application - this is an owner/lender cash-flow problem being pushed down to the sub, not a quality dispute. The GC should check exactly what its subcontract says: Massachusetts courts generally treat 'paid when paid' language as a timing mechanism unless the clause clearly makes owner payment a condition precedent, and either way the sub retains its lien and contract rights.
The GC's real exposure is not the $64,000 - it is a cascading set of lien claims from other trades who see this sub get paid by bond or by lawsuit, plus the schedule cost of a closing that slips.