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Mechanics’ Liens: Good News for Contractors; Bad News for Construction Lenders

In Commerce Bank/Harrisburg v. Kessler, 46 A.3d 724 (Pa. Super. Ct. 2012), the Superior Court held that a bank’s mortgage is not entitled to “super-priority” under the Mechanics’ Lien law unless all of the proceeds from the mortgage “are used to pay all or part of the cost of completing erection, construction, alteration or repair of the mortgaged premises.” This means that if any proceeds from a mortgage are used for “soft costs” (e.g. – taxes, closing costs, advertising, etc.) of construction, the “super priority” for the entire mortgage will be lost and a contractor’s lien will have priority over a bank’s mortgage if construction started before the mortgage was recorded.