Filing Mistake Invalidates $12.4 Million Mechanics Lien

Mechanic lien laws are highly technical, and they frequently change in unpredictable ways  (see recent controversial example from Washington).   We’ve expressed the sentiment a hundred times on this mechanics lien blog – it’s very easy to make a common lien mistake.

Unfortunately for JE Dunn Construction Co., it seems someone may have really dropped the ball filing its $12.4 Million mechanics lien.   The developer of a stalled West Edge project in Kansas City now claims the construction company’s mega-lien has a mistake that invalidates it.

When it comes to filing a mechanics lien, sometimes you only get one chance to get it right. Depending on the merit of  the developer’s claim, JE Dunn Construction Co. may have gotten a very frustrating and expensive lesson about the technical nature of mechanics liens.

From the press, it looks like the lien would have converted the debt from an unsecured claim into a secured claim in the bankruptcy proceedings pending on the West Edge project.   Without the lien, the claim falls to an unsecured one, making collection a lot less likely.  That makes this lien mistake one of the country’s most expensive.

What Could Have Went Wrong?

What could have went wrong with the mechanics lien, you ask?   What kind of mistake could invalidate such a big claim?

Funny enough, the biggest claims in the world can be invalidated by just the simplest and most technical oversight.  Here are examples of common filing errors that could have cost JE Dunn Construction Co. its secured claim:

• Poorly Identifying the Property: Most states require the use of a legal property description, and others require specific descriptions of the property.   In every state, the requirement is technical, and a lien can be invalidated because of an inadequate description.  (See article about describing properties on mechanic liens).
• Signing Mistakes: Mechanic liens must be signed in a particular way.   Some states require they be notarized, some states require a verification with specific and statutory language.  The smallest waiver from these requirements can result in the mechanics lien being invalidated.  (See article on Washington lien invalidated because of verification error)
• Not Sending Notice:   Some states require notice when you begin work.  Some states require notice immediately before filing a mechanics lien.  Some states require notice immediately after filing a lien.   Failing to deliver this notice, can forfeit your mechanic lien rights.  (See blog posts about preliminary and other notices)

Who is Filing Your Mechanics Lien?

Express Lien is not a law firm, and let us be the first to tell you that if you are about to file a $12.4 Million mechanics lien, you have no business filing it without the counsel of a qualified and experienced construction attorney.   That is big money, and it’s certainly worth spending a few thousand dollars on counseling.

However, there are occasions when it doesn’t make financial or practical sense to hire an attorney to file a mechanic’s lien.  That’s when we really shine.   And some law firms - like this one in Georgia – have even recommended using a lien service to file a construction lien in the right circumstances.

What’s great about our service?   Take a look at this page which explains why you trust choose us to file your mechanics lien.

Our service is licensed, insured, bonded and experienced.

Filing A Lien Is A Discipline, and Not A Knee-Jerk Reaction

You’re a contractor, subcontractor or material supplier, and you’re unpaid on a project.   Instantly, your thoughts focus on the mechanics lien concept.  It’s the natural law in the construction industry.

Now, I’m the first to tell you that filing a mechanics lien is one of the best methods of collecting construction debt, and it’s certainly important to think about filing a construction lien as soon as you’re faced with a non-paying customer. But, being prepared and qualified to file a lien takes discipline.

If we’ve said it once, we’ve said it a thousand times….lien laws are complex and hyper-technical.   Across the country, lien laws protect contractors and suppliers by providing them the right to lien non-paying projects.   Likewise, though, the laws protect property owners to prevent owners from paying for services twice, or having an improper lien filed against its property.

So, why is filing a mechanics lien a discipline?   Because it starts the moment you sign your contract.

• In many (not all) states, you can actually waive your right to lien before ever providing any services or materials.  If you’re in one of these states, it’s important to review your contract for this type of waiver language.

• Many states require contractors and/or suppliers to deliver a Preliminary Notice to the property owner (“NTO”) before furnishing labor or materials.  Failure to deliver notice, and to deliver it properly, may result in the forfeiting of lien rights.

• Many states require contractors and/or suppliers to deliver a “Notice of Intent to Lien” or similar instrument a certain number of days after accounts receivables become due, or a certain number of days before filing a lien.   Failure to deliver this notice, and to deliver it properly, may result in the forfeiting of lien rights.   (Read about the differences between Preliminary Notices and Notices of Intent here).

• Liens must be filed within a certain time period, and each state is absolutely different.   (Get state-by-state lien deadlines here).   Liens must be filed timely, or they are likely void.

Express Lien Helps Your Company Be Disciplined About Liens

Express Lien is more than a simple notice and lien filing company (although we’re darn good at this, too).  We were founded to help clear the air concerning the complex lien and notice requirements across the nation.

Here’s how we do it:

• Our Lien Wizard guides you through the notice and lien requirements associated with your role in the project, and the state the project is located.   You tell the Wizard some key information, and it pulls the notice and lien requirements from its database.   From there, you can order the products / documents that are relevant to what you and the law requires.  (Watch a Video on how our Lien Wizard Guides You Through Notice and Lien Requirements).

• We provide you with Free Lien Law Punchlists.   This is a summary of the basic notice and lien requirements of each state.

• The Lien Pilot helps you calculate project deadlines.   For free, you can manage your project data, contacts and important dates.   The Lien Pilot calculates applicable deadlines and filing requirements, and prompts you when they are approaching.

• We do the work for you.   If you don’t want to prepare and send the documents out yourself, or if you just have too many to send and want to focus on running your construction or supply business…Express Lien will do all the work for you.    For notices, we’ll print them, mail them, track them, and store proof of their delivery on our secure servers.  For liens and other filed documents, we’ll prepare them, have them filed, and deliver notice to the project’s relevant contacts.

Contractor files $3 Million Lien in North Carolina

If you think your company is in the hole, your heart must really go out to John S. Clark Construction in Winston-Salem, NC, who on June 23, 2009, filed a $3.1 million lien against a condominium developer.

This is a good reminder that liens can be as small or as big as the project’s debt to a company, from $1 to $3.1 million.

Just be sure to avoid making common mistakes, send your notices and file on time.

Express Lien has experience filing liens that are more than $1,000,000, and can help get your company’s lien on country or parish records.   Use the Construction Lien Blog and the online lien filing tools that comes free with your account to help understand the lien laws and requirements in your state.

Click here, and learn more about how we can help you Lien Smarter…and Get Paid.

What To Do If Your Lien is Challenged?

After you file a mechanic’s lien, parties who have interest in the project may ignore the claim, pay the claim or challenge the claim.

If they ignore the claim, you can of course file a lawsuit to enforce it.  If they pay the claim, you’ll likely next be required to cancel the lien.   This post discusses the third possibility, the circumstance of when someone challenges your lien.

Why A Lien May Be Challenged

Lien statutes are complex and hyper-technical, and if you file a mechanic’s lien without authority to do so or even with the slightest error, an interested party (i.e. owner or general contractor) may challenge your lien.

Here are some of the most common reasons liens are challenged:

•  It was filed past the lien deadline
•  The lien was filed by a party who was required to send preliminary notice, and didn’t
•  The lien does not contain a legal property description

How It’s Challenged (What Happens)

In most circumstances, the challenging party will send you a letter highlighting the defects in your lien, and make a formal request that you cancel the instrument. If you refuse to cancel the lien voluntarily, the party may petition a court to force the removal of the lien.

In some states (like Louisiana, California) if liens are improper and the claimant refuses to voluntarily cancel it, the claimant may be liable to the challenging party for attorneys fees and legal expense incurred in the challenge. Some states do not allow this recovery, and some states – like Washington – will award attorneys fees to the victor of a challenge (whether it be the claimant or the challenger).

If My Lien Is Challenged, Is It Improper?

The answer to this question is “not necessarily.” When a property owner or general contractor retains counsel regarding a construction lien, one of the first things that attorney will do is send a threatening letter that the lien is “improper.” These letters sometimes take liberties with the law and its requirements.

Furthermore, in most states, a challenge in court of an improper lien will consider only procedural or technical errors with the lien, and not necessarily whether the parties performed under the contract.

In other words, in determining if a lien is proper the court may not consider whether each party properly performed under the contract. Instead, the court is concerned about whether the lien notices were sent, the lien contents are technically correct, etc.

Remember that just because you receive a letter from an attorney does not mean that your lien is invalid. Here are some common mistakes made in letters or petitions challenging a lien:

•  Challenge to the lien alleges that claimant did not perform under the contract (i.e. workmanship flaw, unauthorized change order, etc.) only;
•  Person (even if an attorney) drafting letter challenging lien does not understand the lien statutes;
•  Rules are quoted that may not apply to the particular claimant or project

If My Lien Is Challenged, What Do I Do?

If your construction lien is challenged, you have a number of options.

• You can retain or engage an attorney to represent your interests against the challenging party. If allowed in your jurisdiction, you may also represent yourself pro se in support of your lien.

• Sometimes, unfortunately, a claimant may not be able to afford counsel, and may not understand the lien statutes. In these circumstances, you may cancel the lien instrument as requested by the challenging party. The simple cancellation of the lien instrument should not invalidate your right to sue the party who did not pay you (the party you contracted with).

I Got Express Lien to File My Lien – Why Is It Being Challenged

As a lien filing service, Express Lien prides itself on filing liens accurately and in accordance with the form for each state.

However, since Express Lien is a legal document preparation company and not a law firm, we do not guarantee or make any determinations regarding you or your company’s right to lien. So, for example, a lien filed with our service may meet all of the technical and formatting requirements, but may be improper because your company was not authorized to file the lien.

Furthermore, Express Lien files your legal documents with the information provided to us. As such, if incorrect information is provided, there are circumstances when your lien may be improper.

How to Challenge an Improperly Filed Construction Lien

At Express Lien, we’re usually helping companies get construction liens on the books.   However, sometimes, your company may actually require the opposite:  getting an improperly filed construction lien off the books.

Co-founder of Express Lien, Inc., Scott Wolfe, is a construction attorney in Seattle, WA and New Orleans, LA, and he recently published two legal guides on the attorney rating website, Avvo.com.   The two articles discuss how to dispute a construction lien in Louisiana and Washington state.

Here are links to the articles:

• How To Dispute A Construction Lien in Louisiana
• How To Dispute a Construction Lien in Washington State

The article even points readers to a free template letter demanding the cancellation of an improperly filed lien.

What makes a lien invalid?  Read about common filing mistakes right here on the construction lien blog.

And avoid making common filing errors by having Express Lien prepare and file your document.

Lien Smarter…Get Paid.

Who Is Filing Your Lien? Express Lien is Licensed, Bonded, Insured and Experienced

The New York Times recently published an article titled “In a Downturn, More Act as Their Own Lawyers.”   The article, of course, discusses how courts across the country are seeing a rise in “pro se” litigants in connection with the troubling economy.

The rise in pro se litigation is just a slice of the full picture about how the legal system is changing in America.

As the Internet puts legal information on the public’s fingertips, it is becoming more and more difficult for attorneys to charge outrageous prices for drafting simple forms and performing mundane legal tasks.

In states like California, an entire new profession has emerged:  The Legal Document Assistant.

So, when its time for your company to prepare and send a preliminary notice, or prepare and file a construction lien, who do you turn to?

An attorney?   Attorneys frequently require large retainers to even begin work, and filing a mechanics lien can cost $600, $800 or more than $1000.

Do it yourself?   Lien statutes are hyper-technical and any little mistake in the filing can be fatal to your lien.  Further, preparing the document and heading to the courthouse for filing could cost hours of your time.

Express Lien is a great alternative to the expense of legal counsel and the perils of pro se filing.

We’re Licensed:   Express Lien is a licensed Legal Document Preparation company in the State of California, and is registered with Los Angeles Country with Registration # LDA-352.

Were Bonded & Insured:   We pride ourselves of producing quality work, but in the event we do mess up and cause your company damage, Express Lien carries Errors & Omissions insurance, and we have a bond held with the State of California.  Take a look at our Bond and Errors and Omissions Insurance here.

We’re Experienced:   Express Lien, Inc. has filed thousands of lien documents across the nation.

Our shareholders and directors include an experienced general contractor with a family contracting business over 50 years old and two construction attorneys practicing construction law in Louisiana and Washington, and two insurance agents who have experience writing general liability policies and bonds for contractors.

Read more about who we are here.

Virginia’s Payment Chain & Why It’s Important to Lien Early

By statute, the deadline for contractors to file mechanics liens on projects in Virgina is 90 days from the last providing of services or materials.  However, because of Virginia’s unique “payment chain,”  subs and suppliers should file their liens as soon as problems become apparent.

The “payment chain” rules can be quite complex, but its theory is simple:  The property owner must pay for the project only once.

In other words, if the owner pays the general contractor for work before a lien is filed, the lien against the property owner will fail.

So while the Virginia statues provide contractors with 90 days to file their liens, the practical deadline for filing a subcontractor’s mechanic’s lien is before the GC is paid.

What This Means
In previous posts (here, here and here), we’ve written about some mistakes contractors make when collecting on non-paying projects.  Over and over again, it seems contractors wait too long to file their liens, accept promises of future payments, and fear filing a mechanic’s lien to avoid staining relationships.

While in some states a small amount of delay is bearable, the “payment chain” in Virginia makes it deadly.

Across the United States, the best way to protect yourself from a non-paying project is to lien, and lien early.  The “payment chain” in Virginia makes this more the case.

Understanding the Payment Chain
While the theory behind the “payment chain” is simple, as with any other legal concept, the details are more complex.

Here are some questions that are often asked concerning this concept:  What if the property owner partially pays the GC?  How does this actually function in practice?   How do I know whether the owner paid the GC?  What rights do I have if I lien too late?

Fullerton & Knowles, a construction law firm in Virginia, Maryland, Pennsylvania and Wash. D.C. published a Construction Law Survival Manual on its website with answers to these questions.  You can find the particular discussion of the “Payment Chain” at this link.

Things You Can Do To Prevent Payment Chain Problems
The “payment chain” rules apply by default on every construction project.  However, there are features within the Virginia Code that subcontractors can use to bypass these rules.

The Code of Virginia’s Section 43-11 provides that by sending certain notices to the property owner and/or general contractor, the subcontractor can protect itself from a “defense of payment.”   In other words, by notifying the owner and contractor that certain materials or services were provided, the subcontractor or supplier puts the upper tier parties on notice that they deserve payment.

The require notices do require some administrative expense, however, as the code requires that 2 notices are actually sent.  Fuller & Knowles describe the notices and their benefits on its website, as follows:

First, a “Pre-registration” notice is sent to the owner and/or the general contractor before labor and materials are supplied to the project. After labor or materials are supplied, the claimant must provide a second notice with a statement of account and affidavit. The claimant supplying a subcontractor can elect to send the notice only to the general contractor. This will not obligate the owner, but will still obligate the general contractor. The potential benefits are:

1. The Section 43-11 notice can partially take the claimant out of the defense of payment system.  The owner and upstream contractors become directly obligated for payment, to the extent they are holding money at the time they receive the second notice and statement of account. The owner and general contractor essentially provide an involuntary guarantee or joint check agreement after receipt of the second notice.
2. A Section 43-11 notice will probably also provide priority over other mechanic’s lien claimants. In a “partial defense of payment” situation, the 43-11 notice claimant can take the entire fund held by the owner and general contractor. Other mechanic’s lien claimants will receive nothing until the 43-11 claimant is paid in full.
3. There is also an extended deadline for the Section 43-11 claim second notice. A claimant may still have Section 43-11 rights, even after the deadline for mechanic’s lien filing. A claimant probably also still has Section 43-11 rights, even if the claimant has waived lien rights.
4. It is way to avoid problems and legal fees altogether. If the owner and general contractor know they may become obligated, the claimant is likely to receive payment without legal assistance. The owner and general contractor are aware of the players on the project and are motivated to see payments properly applied.

Express Lien Can Help
Express Lien files mechanics liens in the State of Virginia, as we also prepare and send all Virginia construction lien notices.

Fuller & Knowles state that the 43-11 notices are underutilized by contractors because of administrative expense.   Quite frankly, its also because the notices are confusing, and in the middle of operating your construction company it’s difficult to keep up with sending, tracking and managing these notices.

Express Lien solves this problem.

You give us the project data, and our propriety web-based software recommends certain notices and documents, and with the click on a button we’ll prepare these documents, send them for you, track them, and manage them through your client login panel.

Give us a shot, and let us show you how to Lien Smarter.

An Owner’s Perspective on Liens

We frequently post about construction liens from a contractor’s perspective – who are clearly interested in figuring out ways to qualify for the filing of a lien.

What we rarely comment upon is an owner’s perspective, who are concerned with the opposite:  figuring out ways to condemn a lien as improperly filed.

It’s important for those who usually file mechanic’s liens to step back and consider the opposing viewpoint.   There is some value in understanding that upon receipt of a lien, an owner’s will likely have the instinct of wanting to fight it as improper or unfair.

When lien laws are drafted, they are drafted with protection for property owners in mind.  And when contractor boards and other regulatory agencies commit time to lien laws, they are usually focusing on educating the public (i.e. property owners) on what they can do to prevent liens.

A December 2008 article from the Daily Journal of Commerce in Portland, Oregon, stands as an example of this.  In the article titled “Five Questions to Ask About Liens,” the author goes through five questions owners should ask when faced with mechanic’s liens to determine their rights on proceeding forward.

This is not a rare example.   To the contrary, regulatory agencies across the nation who regulate contractors focus a great deal of effort on helping owners understand and overcome improperly filed construction liens.  See the page for Department of Labor & Industries in Washington, or the Contractors State Licensing Board in California.

If your company does wind up filing an improper mechanic’s lien and its disputed by the property owner, a loss in court could require your company to pay penalties, attorneys fees and more.

The point?   It’s important to understand the lien laws in your jurisdiction, and avoid making common errors and mistakes.

Andrea Goldman, a construction attorney in Massachusetts, publishes a great blog about this very issue titled:  Home Contractor v. Homeowner.  She frequently posts on issues that surface in home construction between the property owner and contract that results in litigation or arbitration.

With all of the work across the nation from regulatory agencies attempting to stifle improperly filed mechanics liens, Andrea notes in her blog that mechanic’s liens are so powerful of a collection tool for contractors that even an improperly filed lien can yield non-payment.

In her post the “Strength of Mechanic’s Liens,” Andrea states as follows:

Even if the lien is not done properly, one still has to file an action in court to dissolve it, which requires paying legal fees that are frequently not recoverable.

And regardless of your position on the subject (as a property owner, contractor or regulatory board), and regardless of how right or wrong your position may be, Andrea’s point is clear.   Mechanic’s liens are powerful instruments, and even when they are filed with technical defects, they cause parties to consider the debtor’s claim and contemplate a resolution.

Identifying Property in a Mechanics Lien

This article originally appeared at Wolfe Law Group’s blog, http://www.wolfelaw.com, and is reproduced here with permission.

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When filing a mechanic’s lien on a construction project, it is of course critical to identify the property within your lien. While a seemingly simple task, the laws in nearly every state are very specific about how property is identified…and the consequences of small mistakes can be fatal.

In most states, for example, the statutes and case law governing private construction liens clearly require a “property description” that is more specific than a municipal address. While the law does not explicitly require a “legal property description,” it is clear from the court’s interpretation of the laws that a legal property description is sufficient and a municipal address is not.

Since courts are typically not reluctant to dismiss a lien when simple formalities – such as the property description – are overlooked, to ensure your lien’s validity a legal property description should be used.

What Is A Legal Property Description?
Perhaps the best way to explain legal property descriptions is to demonstrate what it is not; A legal property description is not a simple address.

Accordingly, if you put something like this on your lien to identify a property, your lien is likely invalid:

123 Main Street
Seattle, WA 98134

If you were given a legal property description and a driving map, you’d probably have a very difficult time finding the property. This is because legal property descriptions typically speak in the language of county recorder offices, and not in the common directional parlance of everyday life. A legal property description looks less like the above and more like this:

Subdivision: Breatheway
Range: 105
Lot: 66
County: King
Square: 4-A

Want the technical definition?

A legal description (also referred to as land description, property description or land boundary description) is “a written statement recognized by law as to the definite location of a track of land by reference to a survey, recorded map or adjoining property.”

How To Get the Legal Property Description

In many construction contracts (including AIA contracts), the contracting party in the higher tier is responsible for providing the legal property description to the lower tier party upon request. While very infrequently employed, most contractors have the right to make a simple RFI and acquire this valuable information.

It is sometimes better to make this RFI before work begins, as you’ll be less likely to get a party’s cooperation after a dispute arises. And since there are strict time limitations as to when you can and cannot lien, it is valuable to have this information at hand while things are smooth.

If you do not have the ability to request this as per your contract, or if you’re unable to get the information for practical reasons, there are of course other ways to acquire a legal property description, including:

• Go to the county records office, and pull the Act of Sale for the property. This document will likely have the property description within.
• Use a service to acquire the legal property description. There are many online services such as www.HomeInfoMax.com. If you are filing a construction lien, companies like ExpressLien.com will draft the lien and acquire the legal property description for you.
  
• An attorney may have access to county or parish records to acquire this information.

Common Mistakes and Problems

Sometimes, finding a legal property description can be very difficult.

Depending on your location, the records of the county or parish may or may not be complete or easy to use. If your address is in an area that has been recently subdivided or sold, the legal property description might be “up in the air” or otherwise difficult to obtain. Finally, property on corners or with multiple addresses may be difficult to find.

In our experience, we’ve even encountered instances when the municipal address used by a property owner is not the actual or correct address of the property, and as such, not likely to lead you to a correct legal property description.

In short, you should be careful when acquiring a legal property description as there are many tricks to the trade and many pitfalls for the unwary. Legal property descriptions are very precise, and very fickle. Since the stakes are high (the validity or invalidity of your construction lien), pay close attention as to how you describe the liened property.

Common Collection Mistakes and Pitfalls

This article is reproduced with permission from Wolfe Law Group, who originally published the article on its Construction Law Blog. The article discusses some of the common mistakes encountered when attempting to collect on a non-paying construction project. Liening, when stripped to its core, is simply a collection practice. A lot of Wolfe Law Group’s analysis that relates to collections in general, also relates to the specific device of construction liens. Therefore, we have chosen to share this information here.

Taking a reactive approach to collections instead of a proactive approach
Sometimes, unfortunately, the best collection procedures and attorneys on earth cannot fix a collections problem. An insolvent company who owes you $100,000.00 may owe you that amount forever.

Good collection procedures, therefore, begin before you are owed any amount of money; they begin at the time of contracting.

“An ounce of prevention is worth a pound of cure” rings true for those seeking to avoid a high receivables account. Starting with a good contract and following through with smart project management can help keep your uncollected accounts low.

Common contract provisions that may help avoid a collection scenario is discussed in a related blog post at:

Getting “Too Deep”
The worst collection problems are usually the most avoidable. Frequently, a construction company will continue dumping materials and resources into a project without compensation.

It’s important to reject the urge to perform your services upon a “promise” to pay. These promises are all too common between contractors, and in most cases, are all too empty as well.

Learn to notice cues from your prime contractors or customers that money is tight, and react by demanding exactly what you’re entitled to: payment. You may fear that the paying party will seek someone else to perform the work, but not only are they likely contractually restricted from doing this, but the substituted company will certainly expect payment as well.

Being Unprepared for a Non-Paying Customer
The longer an account goes unpaid, the less likely you’ll ever collect. One of the biggest mistakes you can make when faced with an overdue account, therefore, is to delay your attempts to collect.

It’s easy to put off attempts to collect when you’re not prepared. However, with a collection procedure in place, you can start collecting easily and automatically as soon as an account becomes overdue.

Collection procedures will keep you proactive, consistent and more successful at collecting on unpaid accounts.

Disorganization
Finally, the most common and avoidable collections mistake is being disorganized, and specifically being incapable to prove what you are owed.

As soon as an account goes into collections, it will go into dispute. The paying party will disagree with the amount of work performed, the quality of the work, its scope, the project’s change orders, etc.

In construction as you likely know, there’s no such thing as a perfect project, and so it’s not difficult for an adversary in collections to dispute the quality of your work because of paint chips or n incorrect doorknob.

Organization and a detailed record of the work you performed will help you avoid these time-consuming and expensive arguments. If you have photographs, time-sheets, job logs, etc., you’ll have the evidence necessary to combat these arguments and keep your overdue account from turning into a settled account.