Here is a recent professional services lien priority decision that will be of interest to any lender financing construction activities.
In Zervas Group Architects, P.S. v. Whidbey Island Bank, Division One affirmed the trial court’s decision that the project architect’s lien had priority over the Bank’s deed of trust. The key question was whether the Bank had notice of the services at the time it recorded its deed of trust. The Court held that it did, even though (1) the architect never filed a notice of professional services under RCW 60.04.031(5); and (2) the Bank inspected the property and observed no visible sign of construction. These were not enough to bring the Bank within the statute’s safe harbor for subsequent mortgagees.
In a turn of phrase worthy of Sherlock Holmes, the Court noted as follows:
[T]he Bank had ample information from which to deduce, through implication or inquiry, the existence of a potential professional services lien claimant, to wit the architect on the project. The Bank knew the project was merely months away from obtaining construction permits, so that architectural services had to have been nearly complete.
The Court also suggested that the Bank had actual notice of the services, although does not identify what this was.
If you are a construction lender, the take-away is this: Do your due diligence and refine your powers of deductive reasoning. Merely relying on a lack of recorded notice and a visual inspection of the construction site is not enough.