Even seasoned real estate finance practitioners can be stumped by New York’s Lien Law, specifically Section 22, a provision that is intended to balance protections ensuring payment of available funds to materialmen and laborers with lien priority for mortgage lenders providing financing to the project. Construction lenders to a New York project may maintain lien priority for periodic loan advances over intervening liens of contractors for any portion of the loan which is advanced for hard costs and certain statutorily permitted soft costs in strict accordance with the lender’s public disclosure of available loan amounts and intended uses made at the initial closing of the particular loan.
Such disclosure, known as a “Section 22 affidavit,” reveals the consideration paid for the loan and all related expenses incurred or to be incurred in connection with the loan as well as, most importantly for purposes of this article, the net sum available to the owner for the cost of the improvements. The sworn statement, which accompanies the statutorily required building loan contract, must be filed in the office of the county clerk where the property is located prior to or simultaneously with the recording of the building loan mortgage.
