For this week’s Guest Post Friday here at Musings, we welcome back a good friend and fellow construction attorney, Scott Wolfe Jr. Scott is a construction attorney who practices law through his firm Wolfe Law Group in California, Washington, Oregon and Louisiana. He is also the founder of Zlien, a nationwide preliminary notice and mechanic’s lien filing service. He is the author of blogs Construction Law Monitor and the Construction Lien Blog.
A few years ago I wrote a blog post that is quite popular on our Construction Lien Blog, titled “Filing A Lien Is A Discipline, and Not A Knee Jerk Reaction.” I love the title to this post, because it expresses a real truth about successfully making a mechanics lien claim.
Regardless of where you are furnishing labor or materials, the act of filing a mechanics lien is more than just shooting off a lien affidavit after you’re already owed money. For most in the construction industry, and in most jurisdictions, mechanic lien claims are something that develop over time. Unfortunately, this development often starts with the moment you begin furnishing to the project.
Since writing that “knee jerk” article, I’ve thought (and written) about the concept even further. Successfully filing a mechanics lien claim actually requires companies to employ some sort of “lien policy,” focusing on compliance with all notice requirements and lien deadlines. And the start of preparing such a lien policy is an understanding of what I call the mechanics lien ecosystem, or the “life of a mechanics lien claim.”
I’ve broken it down into three steps: Preserve, Perfect, Enforce.
Preserve
Every state and the territories (and Canada!) all have mechanics lien statutes, providing to contractors, subcontractors, suppliers and professionals the right to file a lien against the property where materials and/or labor are furnished.
However, to quality for this lien protection, construction participants must take certain actions to preserve these rights. These preservation requirements will change depending on where you’re furnishing, but they always require some action at the start of providing services or materials. Here are the most common preservation requirements:
Preliminary Notices / Notices to Owner by Those Who Did Not Contract With The Owner
When states are referred to as “notice states,” that is typically because they’ve adopted this very traditional notice requirement, which mandates that all parties who have no contractual privity with the property owner send a “preliminary notice” or “notice to owner” to the property owner within a specific number of days after first furnishing labor or materials.
These prelim notices are usually required within 10-45 days from first furnishing of materials or labor (check your state’s rules), and must contain certain information within the notice and be sent by a certain method (usually certified mail with return receipt requested). Those who fail to send their notice on time will forfeit their lien rights, with limited exceptions.
Notices Required by General Contractors
While most states’ notice requirements focus on those who did not contract with the owner, there are some laws out there that require notices from only those who contracted with the owner.
Some examples include:
- Louisiana requires general contractors to file a Notice of Contract before commencing work to qualify for lien rights.
- On certain residential and commercial projects, Washington requires the delivery of a Model Disclosure Statement.
- On Residential projects in Idaho, Iowa, Louisiana & Oregon, a Notice of Lien Rights must be provided to the owner.
- In Utah, general contractors must file a “Notice of Commencement” at the start of work.
Failure to send these notices will also result in a forfeiture of lien rights.
Perfect
Preserving your mechanic lien rights requires compliance with certain notice prerequisites that apply when starting to furnish labor and/or materials. These notices must be delivered before any accounts are ever overdue, and indeed, before anyone is even owed money.
The perfection requirements, however, come on the other side, when the contractor, supplier or professional has performed its work and is now due payment.
If lien rights were preserved, a contractor, supplier or professional can “perfect” it’s lien claim by filing the same with the county recorder or clerks office. Depending on your state, the filing can go by a number of names: Notice of Claim, Claim of Lien, Construction Lien Claim, Mechanics Lien Claim, Statement of Claim and Privilege, etc. It’s all the same. These are all documents that outline what work you performed, where, for who and the amount owed to you.
When filing your mechanics lien claim, it’s important to be very careful. Since these claims encumber real property, courts typically require strict compliance with the lien statutes, which means you better have all the required information in your claim. There are lots of traps for the inexperienced, with the most common mistakes being a failure to identify the property with the legal property description and not including all of the statutorily required data.
Properly preparing and recording your mechanic lien claim, and then serving a copy of the same on the property owner and all other required parties within the statutory required time frame, will act to perfect your mechanic lien rights, and a mechanics lien claim will then encumber the property…until your deadline to enforce it.
Enforce
The third and final step in the life of a mechanics lien is the enforcement of the same. One common misconception about liens is that they will encumber the property until paid. That’s not true. After a mechanics lien claim is perfected by recording, it only remains enforceable for a specific period of time.
Therefore, if the mechanics lien doesn’t produce payment after filing, then you will be required to file a lawsuit to foreclose upon or enforce the claim.
Again, each state is different as to when this foreclosure action is necessary. California, for example, is on the short end requiring a foreclosure lawsuit within 90 days from when the mechanics lien is filed. Ohio is on the long end, giving lien claimants 6 years from filing to have the lien enforced. If there’s an average out there, it’s probably between 8 and 12 months.
While the timing is different, the general requirement is the same: After a certain period of time, you’re required to file a lawsuit to foreclose on the lien. Therein, you’ll need to prove your case and demonstrate you are owed the money you claim. If you win, the court will order the property sold to pay your debt.
Scott and I welcome your comments below. Also, please subscribe to keep up with this and other Guest Post Friday Musings.
Scott, in Missouri where I practice, general contractors are required to provide a specified Notice to the owner very early in the project in order to have the right to assert mechanic’s lien rights. Subcontractors, on the other hand, simply need to send a Notice to the owner at least 10 days before they file their mechanic’s lien.
Scott, one of the things I’ve more often in this down economy is the need to file a Notice of Continued Perfection under § 546(b) of the Bankruptcy Code in order to protect mechanic’s lien rights when the owner files bankruptcy after mechanic’s liens are filed. The Automatic Stay prevents the filing of an enforcement lawsuit, so a mechanic’s lien claimant may need to file a 546(b) Notice in order to keep its claim from becoming unenforceable.
Thanks for checking in Rob
Thanks for the opportunity to guest post again Chris. I love appearing on Musings.
Rob, great comments and thoughts. The § 546(b) of the Bankruptcy Code issue is very important, especially these days. And, of course, notice requirements are a must-know for those in the construction biz.
When we think of “notice states” in general, we think of those traditional notice to owner requirements imposed on subs and suppliers. But there are a few states (like Missouri and Louisiana) who reserve that notion, and require notice from the prime.