No one likes terminating a notice of commencement. In the post-housing bubble economy we live in, many underwriters have made it increasingly more difficult to obtain coverage over potential construction liens. This process typically involves lien waivers, final contractor’s affidavits and even indemnities. So when I’m told there’s a way around this process…I listen up.
To rewind, a condominium is a form of land classification which converts an underlying raw land description to that of condominium units. Typically, a Declaration of Condominium setting out the legal description of the condominium and identifying the locations of the condominium units and the condominium’s common elements (pool, walkways, parking, etc.) is filed in the public records of the county. Most declarations state that the condominium unit owner also owns an undivided (proportional) share in the common elements. For example, the owner of “Unit A” also has ownership in the pool and may therefore use it accordingly.
Another quick refresher. A Notice of Commencement (“NOC”) is typically filed by the general contractor when he or she is performing improvements/construction work on a parcel of land. Florida law states that any liens filed during the course of construction will revert back to the filing date of the NOC. This protects the contractor, and in essences provides them with a high priority lien. A lender or buyer of the property will want clean title (not subject to any construction liens) and will therefore require the NOC be terminated. As stated above, this can be a cumbersome process. In some cases, the title insurance underwriter is willing to insure over this risk without obtaining a termination – Notices of Commencements filed against the common elements of a condominium is once of these cases.
So, what happens when the pool is being resurfaced and a NOC is filed against it? This event would create a “lien” (the Notice of Commencement) against every single unit in the condominium – as they each have an undivided interest in the common elements. Therefore, any sale or mortgage during the construction period would be subject to liens arising from construction and relating back to the NOC. Proposed insured buyers and lenders under a title commitment/policy object to this and require the owner to terminate the NOC. But whose responsibility is it to obtain the Notice of Termination…the unit owner, the association, every unit owner? To avoid this confusion and painstaking work, most underwriters allow the NOC requirement/exception to be removed based upon a Sufficient Funds Affidavit.
A Sufficient Funds Affidavit is just that, it’s an affidavit from the Condominium Association stating that they have sufficient funds to pay for the contracted work, as evidenced by the NOC. This gives the title insurance underwriter confidence (and recourse against the association) that the work will be completed and fully paid for. This form does not need to be recorded, but should be kept in the closer’s file.
Here’s a link to a Sufficient Funds Affidavit Form.