Click here to print:  A Construction Lien for Work Performed for a Purchaser May Not Be Sufficient

By Richard W. Mollerup

(as Published in the Idaho Construction Review, November 2010)

Relying on a construction lien for work performed at the request of a purchaser of real property is dangerous and may not insure payment.  Many real property purchase and sale agreements, particularly transactions in which the property is to be developed or renovated, provide that the purchaser may perform substantial work on the property prior to closing the transaction for due diligence or obtaining subdivision or other approvals.  The performance of due diligence or securing of approvals may actually be an express condition of the purchaser’s obligation to buy the property.  In the event the purchaser fails to pay for work, the lien rights of the contractor or engineer may be of little use even if the sale is consummated and the purchaser becomes the fee owner.

The initial question is whether the purchaser is contracting for work or professional services as the purchaser or as an agent for the owner.  Idaho Code § 45-501 creates a lien for any person performing labor, furnishing materials or professional services at the request of the owner or his agent.  The Idaho Supreme Court has determined that the work must be requested by the owner and the owner’s knowledge or permission for the purchaser to perform the work is not sufficient. The reason is that one cannot encumber or create a lien on an real property interest greater than his own.

Idaho Code § 45-507 specifically provides that, if the person requesting the work to be performed owns less than a fee simple interest, then only the interest of the person causing the work or services to be performed is subject to the lien.  This is normally raised in the context of a tenant requesting work to be done on his premises and whether the lien for such work attaches to the fee simple interest of the owner or the leasehold interest of the tenant.  However, some courts have applied the statute to a purchaser holding that, at the time the work or services were commenced to be furnished, the purchaser owned only an executory or future interest in the property. If the purchaser does not complete the purchase, that interest essentially goes away.  If the purchaser completes the purchase, the lien should attach to the fee interest in the property.  However, the construction lien may be junior to a purchase money mortgage recorded after the work was commenced.

The relative priority of a construction lien for work requested by a purchaser and recorded before the purchaser completes the transaction versus the priority of a purchase money mortgage requires analyzing two competing statutes.  Idaho Code § 45-506 provides that a construction lien is preferred to any lien, mortgage or other encumbrance which may have attached subsequent to the time when the work was done. 

However Idaho Code § 45-112 provides that a mortgage given for the price of real property (a purchase money mortgage) has priority over all liens created against the purchaser.  A purchase money mortgage does not have to be a mortgage in which the seller of the property is the mortgagee.  A mortgage or deed of trust to a third party or institutional lender is a purchase money mortgage so long as the entire proceeds are used for the purchase price. One District Court held that a construction lien for work requested by a purchaser was essentially a lien against the purchaser because he had only an executory interest and therefore, the construction lien was junior to the purchase money mortgage.

For a purchase money mortgage to have priority, the mortgagee must be a bona fide purchaser without knowledge of adverse claims to the property.  Based on that, one would think that a purchase money lender who not only knew work was being performed at the instance of the purchaser, but required it as a condition of the loan would not be a good faith purchaser.  However, a recent District Court in a case with essentially those facts held that purchase money mortgage had priority because there was no evidence that the mortgagee had knowledge or reason to know that the person performing the work had not been paid.

Therefore, a contractor, material provider or other party with lien rights under Idaho Code § 45-501 et seq who performs work or delivers materials at the request of a purchaser assumes additional risks unless the work was requested directly by the owner.  He assumes the risk of the transaction not closing, in which case there is no lien, or having a lien which is junior to a substantial purchase money mortgage recorded after work was commenced or materials.

Richard Mollerup is a partner with the law firm Meuleman Mollerup LLP, practicing in the areas of real property law, title insurance and escrow law, and in business matters including formation and operation of corporations, partnerships and joint ventures.     Mr. Mollerup can be contacted by phone at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  More information is available online at www.lawidaho.com.