Lender’s Loss of Priority Under Hawaii Mechanic’s and Materialman’s Lien Law

Hawaii lenders should record their mortgages as soon as possible, particularly when the borrower intends to do construction or improvements on the mortgaged property. The reason for this is Hawaii’s Mechanic’s and Materialman’s Lien Law. Hawaii law allows any person or association of persons furnishing labor or material in the improvement of real property to have a lien upon the improvement as well as upon the interest of the owner of the improvement in the real property upon which the same is situated, or for the benefit of which the same was constructed.

The amount of the lien would be for the price agreed to be paid (if the price does not exceed the value of the labor and materials), or if the price exceeds the value thereof or if no price is agreed upon by the contracting parties, for the fair and reasonable value of all labor and materials covered by the contract, express or implied.

A Hawaii Mechanic’s and Materialman’s ien relates back to and takes effect from the time of the “visible commencement of operations”. “Visible commencement of operations” means the first actual work of improvement as part of a continuous operation, or the first delivery to the site of materials to be used as part of a continuous operation in the improvement, of such manifest and substantial character as to notify interested persons the real property is being improved or is about to be improved.

A mechanic’s lien has equal priority with all other mechanic’s liens. It also has priority over all other liens of any nature except:

  • Liens in favor of any branch of the government;
  • All liens for wages for labor performed in the completion of the improvement, but not exceeding $300 for each claimant and the claim is filed by:
    • a. the person who actually performed the labor;
    • b. the person’s legal representative in the event of death or incapacity; or
    • c. the director of labor and industrial relations;
  • Mortgages, liens or judgments recorded or filed prior to the time of visible commencement of operations; and
  • Mortgages recorded prior to the date of completion, subject to the following conditions:
    • All or a portion of the money advanced under and secured by the mortgage is thereafter used for the purpose of paying for the improvement; and
    • Mortgage recites that the purpose of the mortgage is to secure the moneys advanced for the purpose of paying for the improvement in whole or in part.

Thus, unless a lender’s mortgage will meet the criteria of section 4 above, the lender should check the property for any signs of construction and/or commencement of operations prior to lending to a Hawaii borrower and document it.

The failure to do so could result in loss of priority for the lender should the borrower fail to pay those contractors or subcontractors who worked on the mortgaged property.

Contact us today and we can assist you in resolving your mechanic’s lien issue.

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