## Facts

- Skyline Properties, Inc. (Skyline) owned real property connected with a development project.
- Mealy, a contractor and creditor of Skyline, began on-site construction work on April 20.
- Mealy’s work included converting an existing farmhouse into a sales office and building an addition to the farmhouse.
- On June 5, a bank (also a creditor of Skyline) issued mortgage financing to Skyline and recorded its mortgage against the same property.
- Mealy was not paid in full for its work.
- On September 23, Mealy filed a mechanic’s lien claim for the unpaid construction work within the time allowed by Pennsylvania law.
- The bank later filed a mortgage foreclosure action against Skyline.
- Skyline filed for bankruptcy, and Mealy and the bank disputed which lien had first priority against the property.

## Issues

1. Under Pennsylvania mechanic’s lien law, is a properly filed mechanic’s lien effective for priority purposes from the date of visible commencement of the work, rather than from the later date the lien claim is filed?
2. If the mechanic’s lien relates back to the date work visibly commenced (April 20), does it take priority over the bank’s mortgage recorded after that date (June 5)?

## Decision

- The court applied Pennsylvania law to determine the nature and priority of the parties’ interests in the debtor’s real property.
- The court held that Mealy’s mechanic’s lien was effective for priority purposes from the date visible construction work commenced on the property, not merely from the date Mealy later filed the lien claim.
- Because Mealy began work on April 20 and the bank did not record its mortgage until June 5, the bank took its mortgage subject to Mealy’s earlier-arising mechanic’s lien rights.
- The court therefore ruled that Mealy’s mechanic’s lien had priority over the bank’s mortgage in the bankruptcy proceeding.

## Legal Principles

- In bankruptcy, lien priority in a debtor’s real property is generally determined by applicable state law governing property interests.
- Under Pennsylvania mechanic’s lien law, the effective date used to measure priority of a mechanic’s lien can be the date of visible commencement of the improvement, even though the lien claim is filed later within the statutory period.
- A mortgage recorded after visible commencement of work is junior to a mechanic’s lien that relates back to that commencement date.

## Conclusion

In *In re Skyline Properties, Inc.*, the bankruptcy court held that, under Pennsylvania law, Mealy’s mechanic’s lien was effective for priority from the visible commencement of construction on April 20, so it had priority over the bank’s mortgage recorded on June 5, even though Mealy did not file its lien claim until September 23.


In re Skyline Properties, Inc., 134 B.R. 830 (1992)