LITTLE ROCK, Ark. — The 95th General Assembly of the Arkansas State Legislature wrapped up its session in May, resulting in the passage of 1,026 new laws. This legislative session proved to be busier than the previous one, presenting a substantial amount of new regulations and changes for various sectors, especially real estate development and construction.
In particular, Act 479, which took effect on August 5, introduces significant modifications to the process of establishing priority for mechanic and materialman liens, referred to as construction liens. This amendment is especially pertinent for stakeholders within the construction industry, including lenders, attorneys, and title companies.
Traditionally, Arkansas law has allowed construction liens to take precedence based on the commencement of work or delivery of materials, regardless of when notice of the lien was filed. This approach has created complications for lenders, as it resulted in what is known as “broken priority.” A contractor or supplier starting work before a mortgage is recorded could inadvertently compromise the lender’s position, placing the mortgage behind other claims due to the “relation back” doctrine.
For lenders who typically supply the bulk of funding for construction projects, these issues can lead to confusion and increased financial exposure. The complexities of tracking lien waivers grow, often resulting in project delays and escalating costs.
Act 479 addresses these concerns by implementing two key changes. First, it revises the “relation back” doctrine, establishing that while a construction mortgage remains subordinate to any liens from work or materials supplied before its filing, it now takes priority over claims from parties who start work or deliver materials afterward.
Second, the act introduces the affidavit of non-commencement, a new tool that can provide a protective buffer for lenders. This affidavit, signed by a licensed professional, allows lenders to assert that construction has not yet begun, granting a period of four business days to file the construction mortgage for priority purposes. This affidavit is presumed accurate unless proven fraudulent, placing legal accountability on those who submit false claims.
Overall, Act 479 aims to create a more secure framework for construction financing in Arkansas. By curtailing the “relation back” doctrine, it mitigates risks associated with uncertain lien priorities. Furthermore, the affidavit of non-commencement streamlines the process and enhances clarity for all parties involved by simplifying the method for confirming when work officially starts.
This legislative change is likely to save time and reduce costs, thus facilitating more efficient project initiation in a state already grappling with well-documented shortages in housing inventory. As the landscape for construction financing evolves, the implications of Act 479 may have far-reaching benefits for the Arkansas community.
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