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The Top Five Things Lenders Need to Know About Florida’s Construction Lien Law
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The Top Five Things Lenders Need to Know About Florida’s Construction Lien Law

February 18, 2021 Banking & Financial Services Industry Legal Blog

Reading Time: 10 minutes


Florida’s Construction Lien Law found in Chapter 713, Florida Statutes, may seem like an area of the law that is only relevant to contractors and property owners. However, there are important aspects of the Construction Lien Law that can directly affect the rights and obligations of lenders in numerous ways. Although Florida’s Construction Lien Law “has long been recognized as an outstanding example of inept legislative endeavor, perplexing alike the bench and bar, contractors, owners, materialmen and workmen,”[1] this blog will attempt to demystify the most important aspects of Florida’s Construction Lien Law that every lender needs know about and understand.

construction lien notice of commencement notice of termination lender liability Chapter 713 Florida Statutes

I. Lien Priority / Relation Back

Unlike a mortgage lien, which, once recorded in the public records, has priority over other mortgages or liens that are recorded later in time, construction liens have the ability “relate back” to a time earlier than the date the construction lien was actually recorded. Specifically, under Fla. Stat. § 713.07(2), construction liens may relate back to the date that a notice of commencement was recorded for the construction project under Fla. Stat. § 713.13.

This means that in certain circumstances, a construction lien recorded even months after a mortgage can relate back and have priority over the earlier recorded mortgage if the mortgage was recorded after a notice of commencement.[2] This result can be potentially disastrous to a mortgage lender that may lose the value of a first priority mortgage lien as security for the loan, and potentially have the mortgage subject to being foreclosed in a construction lien foreclosure lawsuit. Accordingly, lenders making construction loans or those whose loan will be secured by a mortgage on real property, must be aware of notices of commencement and their requirements under Fla. Stat. § 713.13, to ensure their mortgages maintain the intended priority over any potential later construction liens.

II. Notices of Commencement Under Fla. Stat. § 713.13

Notices of commencement are governed by Fla. Stat. § 713.13, which sets forth the requirements and form of the notice of commencement. A notice of commencement must be signed by the property owner and recorded in the public records prior to the commencement of construction of any improvement to real property with a contract price over $2,500. Fla. Stat. § 713.13(1)(a). A notice of commencement is effective for relation back purposes for one year unless the notice of commencement states that it is effective for one year plus any additional time required for construction over one year, as expressed in the underlying construction contract. Fla. Stat. § 713.13(1)(c).

Because construction liens relate back to the date of recording of a notice of commencement, all lenders relying on mortgages for security must ensure that their mortgage is recorded prior to the recording of a notice of commencement. If a notice of commencement is recorded prior to the mortgage, the lender may need the property owner to terminate the notice of commencement in accordance with Fla. Stat. § 713.132, discussed in more detail below. Otherwise, a construction lien recorded against the property later may relate back to the date of the notice of commencement and have priority over the mortgage.

In addition, if a construction lender will be distributing loan funds directly to the contractor, the lender is assigned the owner’s duty to record a notice of commencement prior to the disbursement of any construction funds to the contractor. Fla. Stat. § 713.13(7). If the lender delays recording the notice of commencement or fails to record the notice of commencement, it will be liable to the owner for any damages that it incurs as a result. Fla. Stat. § 713.13(7) (stating that the “failure of a lender to record the notice of commencement as required by this subsection renders the lender liable to the owner for all damages sustained by the owner as a result of the failure”); Napolitano v. Sec. First Fed. Sav. & Loan Ass’n, 533 So. 2d 948, 950 (Fla. 5th DCA 1988) (reversing a summary judgment in favor of the bank because the bank delayed recording the notice of commencement).

III. Notice of Termination of NOC

Because construction liens relate back to the time a notice of commencement is recorded, if a notice of commencement is recorded prior to the lender’s mortgage, the lender may need to have the owner terminate a previously recorded notice of commencement under Fla. Stat. § 713.132 to ensure that its mortgage has priority. See Stock Bldg. Supply of Fla., Inc. v. Soares Da Costa Const. Servs., LLC, 76 So. 3d 313, 318 (Fla. 3d DCA 2011) (“[I]t was necessary for the Owner to file a Notice of Termination in order to terminate the effectiveness of this Notice of Commencement, thus giving the lender a first lien on the property when it subsequently recorded the construction mortgage in connection with new financing of the Project.”).

A notice of commencement may be terminated by the owner executing, swearing to, and recording a notice of termination according to the requirements of Fla. Stat. § 713.132. However, an owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with Fla. Stat. § 713.06(4).

A notice of termination must contain certain information required by Fla. Stat. § 713.132 as follows:

(a) The same information as the notice of commencement;
(b) The recording office document book and page reference numbers and date of the notice of commencement;
(c) A statement of the date as of which the notice of commencement is terminated, which date may not be earlier than 30 days after the notice of termination is recorded;
(d) A statement specifying that the notice applies to all the real property subject to the notice of commencement or specifying the portion of such real property to which it applies;
(e) A statement that all lienors have been paid in full; and
(f) A statement that the owner has, before recording the notice of termination, served a copy of the notice of termination on the contractor and on each lienor who has a direct contract with the owner or who has served a notice to owner. The owner is not required to serve a copy of the notice of termination on any lienor who has executed a waiver and release of lien upon final payment in accordance with Fla. Stat. § 713.20.

It is critical that the notice of termination complies with these statutory requirements. A notice of termination that does not strictly comply with the requirements will be ineffective. See LaSalle Bank Nat. Ass’n v. Blackton, Inc., 59 So. 3d 329, 330 (Fla. 5th DCA 2011). A proper notice of termination is effective to terminate the notice of commencement at the later of 30 days after recording, or the date stated in the notice of termination as the date on which the notice of commencement is terminated, if the notice of termination was properly served on the contractor and on each lienor who had a direct contract with the owner or who had served a notice to owner. Fla. Stat. § 713.132(4).

IV. Proper Payments

If a lender, after having received a notice to owner under Fla. Stat. § 713.06, undertakes to disburse funds under a construction loan directly to a contractor, the lender has the duty to make proper payments pursuant to the Florida Construction Lien law. Fla. Stat. § 713.06(2)(d). This essentially means that the lender must ensure that the contractor, and all lienors who have served notices to owner, provide partial releases of lien in exchange for each progress payment, and final releases of lien upon final payment, with final payment to be made only after receiving the contractor’s final payment affidavit.

If a lender fails to do so, the lender will be liable to the owner for damages, which can include the obligation to pay for work twice if a contractor was paid for work but did not pay the subcontractor for such work, among other damages. Therefore, the better practice for construction lenders is generally to disburse loan funds to the owner and have the owner pay the contractor and obtain the lien releases. This is because a lender may “disburs[e] construction funds at any time directly to the owner, in which event the lender has no obligation to make proper payments under this paragraph.” Fla. Stat. § 713.06(2)(d). However, even if the lender does not have a direct obligation to ensure proper payments in such instance, it is still in the construction lender’s best interest to ensure that the owner provides the lender with the lien releases as part of the loan disbursement process in order to avoid construction liens against the property.

V. Lender Liability Under Section Fla. Stat. § 713.3471

In addition to the duty to make proper payments, Fla. Stat. § 713.3471 creates a duty for construction lenders to give written notice to contractors if the lender intends to stop making advances under the construction loan, such as for example, due to a borrower default. Specifically, the statute requires that within five business days after the lender makes a final determination that the lender will cease further advances pursuant to the loan, the lender shall serve written notice of that decision on the contractor and on any other lienor who has served the lender with a notice to owner. Fla. Stat. § 713.3471(2)(a). If the lender timely give the notice, it shall not be liable to the contractor based upon the decision of the lender to cease further advances if the decision is otherwise permitted under the loan.

However, if the lender fails to give the required notice, the lender will be liable to the contractor to the extent of the actual value of the materials and direct labor costs furnished by the contractor plus 15 percent for overhead, profit, and all other costs from the date on which notice of the lender’s decision should have been served on the contractor and the date on which notice of the lender’s decision is served on the contractor. Fla. Stat. § 713.3471(b). This liability is capped at the amount of the amount of the undisbursed loan funds at the time the notice should have been given unless the failure to give notice was done for the purpose of defrauding the contractor. Fla. Stat. 713.3471(c).

As the First District Court of Appeal noted in Whitehead v. Tyndall Fed. Credit Union, 46 So. 3d 1033, 1036 (Fla. 1st DCA 2010), “[t]he obvious purpose of the statute is to prevent . . . the unjust termination of payments to a contractor who continues work, without any notice from the lender that payments will be terminated.” Accordingly, construction lenders must be aware of the statutory notice requirements in the event the lender intends to cease loan disbursements in order to avoid such an unjust result and the potential liability for the lender under Fla. Stat. § 713.3471.


[1] Miller v. Duke, 155 So. 2d 627, 631 (Fla. 1st DCA 1963).

[2] However, not all construction liens under Chapter 713 are given the benefit of relation back. Persons or entities rendering professional services, such as architects and engineers, Fla. Stat. § 713.03, or making real property suitable for construction of an improvement by, for example, grading, leveling, excavating, and filling of land, are not entitled to have their liens relate back. Fla. Stat. § 713.04 Instead, these construction liens have priority as of the time they are recorded.

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