What You Need To Do Immediately After Filing A Construction Lien
So, you filed your construction lien on time. Whew! Now what?
If you’re a subscriber to our blog, you know we frequently post about the technical requirements and strict deadlines that lead up to the filing of a construction lien. We don’t, however, frequently discuss the technical requirements and strict deadlines that follow a lien’s filing. There are a few, and as usual, these requirements vary state-by-state.
Generally speaking, however, you have to keep two things in mind immediately after filing a construction lien.
First, you may need to send notice of filed lien to the property owner and/or contractors “up the chain.” In some states (like in Texas) a lien is actually unenforceable unless a copy of the filed lien is delivered to the property owner within 5 days of its filing. That’s a serious penalty, and a pretty immediate deadline. Other states have similar penalties (in Oregon, for example, you cannot collect attorneys fees from the other party in foreclosing on lien that was not delivered to the property owner after filing).
Now, here is how Express Lien helps.
Any liens ordered from us (in any state) are delivered to the property owner and all other interested parties (those named on the lien) immediately after filing. Notice of the filing is delivered certified mail, and a record of the mailing is maintained in your online account, available for you to review or download at anytime. You simply place your order and forget about it – we do all the rest.
Second, liens expired if they are not “foreclosed upon” or “enforced” within a certain period of time. In some states, liens must be enforced within just 90 days (California), while other states can provide up to 2 years (Texas). Failure to file a lawsuit enforcing / foreclosing the lien will result in the lien expiring.
How does Express Lien help with this?
Well, once you put the “Lien’s Filing Date” into our system, the system will calculate your lien’s expiration date. If you order the lien from Express Lien, we’ll put the date in the system for you. We don’t actually foreclose or enforce the lien for you (you’ll need an attorney for that), we do give you a heads-up when the deadline is approaching.
If A Construction Lien is Bonded…Does that Circumvent Payment to an Claimant?
Typically, a construction lien is filed to have a number of desired effects: (1) To prevent the sale or transfer of the property; (2) To hold multiple parties without contractual privity liable for the debt; and (3) To provide contractors with a faster and more direct remedy against parties in litigation.
But if a homeowner (or other interested party) files a bond in response to the lien, does that defeat the purposes of the lien itself?
Quite simply, no.
What is a lien bond?
Most mechanic liens statutes give property owners and other interested parties in a construction project the ability to file a bond in response to a party’s filing of a mechanic’s lien. Most states require the amount of the bond to equal more than 100% the lien claim.
In Louisiana, for example, a lien bond must be 125% the amount of a claim. In Washington, the bond must be 150% the claim amount.
The bond itself is deposited with the recorder or clerk’s office and theoretically “takes the place” of the lien. A filed bond, therefore, usually has the effect of eliminating any barriers to the sale or transfer of property and nullifying any rights to sue parties without contractual privity.
So, if a lien can be bonded and all of the lien’s benefits nullified…what’s the point of the lien?
The Bond’s Benefits
While the lien bond acts to nullify some positive aspects of a party’s claim of lien, it does not defeat the purpose of the lien statutes. The claimant loses some benefits of the lien itself, but it gains the benefits of the bond.
Here are some benefits of the bond:
- The entire amount in dispute (plus an additional amount – 25%, 50%, etc.) is filed with the court, and is securely awaiting determination of ownership. This means that upon a court award, you won’t have to spend any money “collecting” the judgment. The money is there.
- The lawsuit to foreclose or enforce your lien becomes a lot less complicated. Sometimes, a subcontractor’s lien claim can include a handful of parties (owners, GCs, suppliers, etc.). The more parties in litigation, the more expense and procedural hurdles. When a lien is bonded, it reduces the litigation to a one-on-one dispute and narrows the scope (and expense) of the action.
In short, while a bonded lien does not prevent the sale or transfer of property and may reduce the number of parties a claimant can sue….the bond also eliminates the need for those remedies. It places the entire amount in dispute (plus sum) into the reach of the claimant, and the claimant can move forward in a clean and uncomplicated procedural action to recover the funds.
If your lien is bonded, it has already succeeded to some degree (it has produced the cash). Now, it’s only a matter of proving that the cash is yours.
Mechanics Lien – Is it like a Mortgage? Yes and No.
In most states, contractors and suppliers can file “Mechanics Liens,” whereby they acquire a privilege against the construction jobsite’s property. The liens usually work like a mortgage on the property, such that it must be satisfied before a property is sold, transferred or refinanced.
While liens act a lot like mortgages, they certainly are not identical to mortgage instruments.
First, in most states, mechanics liens themselves expire. Most states require that the contractor file a lawsuit to “enforce” or “foreclose” on the lien within a certain time period (sometimes short), to extend the life and effectiveness of a lien. Here are some example timeframes:
In Louisiana, liens must be enforced within 1 year from filing. In Washington, lien foreclosure is due within 8 months of filing. In California, you must foreclose within just 90 days of filing!
Second, depending on the state, liens are given more or less “priority.” Lien priority effects the order the instruments are paid in the event of a property sale or foreclosure. In other words, if a property is foreclosed upon but sold for an amount less then the sum of all liens, and there are two mortgages and a mechanics lien on record, who gets paid and who doesn’t?
The answer to this question depends on your state. In Louisiana and Washington, liens take a junior priority to mortgages and similar instruments. In other states, however, the rules are or, depending on circumstances, can be different. In Virginia, mechanics liens have priority over construction loan mortgages. In Minnesota, depending on when the respective instruments are filed, a mechanics lien can take priority over mortgage-type instruments.
Illinois Mechanic’s Liens: Chicken And Waffles Case Ensures Protection to Subcontractors
The great state of Illinois has run through its share problems with its mechanic’s lien laws. Recently, the state has met persistent attempts at giving a facelift to the lien laws, at least as far as those protections for owner-occupied residences.
The law firm of Foran, Glennon, Palandech & Ponzi PC has a wonderful blog entitled the Illinois Construction Law Blog. Recently, the blog has produced several articles commenting on the congressionally proposed amendments to the state’s lien laws.
The blog’s authors have raised concerns about the vague and often redundant nature of the proposed changes. In fact, the authors find that the bill’s purpose could simply be served “if Section 32 [of the bill] were just removed.”
Regardless, the bill’s final change actually seems to have some teeth. The end-all-be-all would be to eliminate subcontractor liens against owner-occupied residences unless their is a provision in the general contract providing for such a lien. The law also adds the following penalty:
"(iv) The failure of a contractor to include thestatement contained in paragraph (i) on the face of the contract relieves the owner of the property of any legalobligation to pay any subcontractors under this Act."
It certainly seems that Illinois is taking a step towards restraint of contractor rights, but another one of the firm’s posts gives an indication that the courts are still with the contractors, in the good fight to get paid.
The interesting case of Springfield Heating v. 39477-55 King Drive at Oakwood, LLC, et al (1st Dist., Doc. No. 1-07-2987), provides a snapshot of judicial interpretation of the state’s fraudulent claim restrictions.
In Springfield, a subcontractor entered into a contract to do substantial remodeling of the Chicago’s Home of Chicken and Waffles. The Illinois Construction Law Blog has a great synopsis of the case which can be found on their blog.
After terminating their contract, the sub brought suit to foreclose two liens it had filed against the two buildings it worked on, and to bring equitable claims for unjust enrichment and quantum meruit (for unjustified enrichment of the Defendant). The liens sole issue was that each lien contained the full amount of the project debt, essentially meaning that the sub had claimed double the amount due. Because of this error, the trial court found that the liens were fraudulently brought and must be dismissed, as opposed to amended. Furthermore, the judge dismissed the equitable actions.
On Appeal, the court found that the statute which provides for the cancellation of fraudulent liens, requires the defendant to show an intent to defraud. Certainly, in this scenario, there had been no such attempt, but rather a last ditch effort to protect the sub’s sole means of recovery against the owner, where there was confusion about how to file the lien and sever the amount due.
As the blog’s author states:
“While no one is going to recommend filing a lien that hasn’t been proofed and double-proofed, it’s nice to see the intent of the law given form here to help people get paid even if a small technical error arises.”
The court’s ruling just goes to show that the subcontractor’s one friend left is the construction lien – many times, its sole source of recovery against an owner.
5 Fast Facts About California Mechanic’s Liens
The Contractor’s Secret Weapon blog posted an article providing 5 fast facts about California Mechanic’s Liens.
Here they are:
1) If you didn’t contract with the property owner, within 20 days after first providing materials or services to a project, you must deliver a Preliminary 20-Day Notice to their customer, the property owner, the general contractor and the construction lender.
2) Failing to provide the Preliminary 20-Day Notice is grounds for disciplinary action by the Registrar of Contractors.
3) Mechanics Liens must be recorded either: (a) within 90 days from completion of project if Notice of Completion or Cessation is not recorded; or (b) within 30 days from completion of project if Notice of Completion or Cessation is recorded. Prime contractors have 60 days.
4) Your construction lien does not last forever. You must file an action to foreclose on your lien within 90 days of its filing.
5) If you don’t file an action to foreclose on your lien, the contractor must record a Mechanic’s Lien Release. Failure to do so could subject the claimant to statutory penalties of up to $2000 for property owner’s legal costs in getting the lien removed.
Virginia – Strongest Liens of them All?
In the past, we’ve posted about the strength and effectiveness of construction liens. Across the nation, construction or mechanics liens can be used as a powerful collections tool by contractors, suppliers and others working on construction projects.
The state of Virginia, however, has perhaps the most powerful mechanics liens in the nation.
In most circumstances, a mechanics lien will get resolved without the property being foreclosed or the property owner filing bankruptcy. However, there are occasions (and in this economy, increasingly so) when a project falls apart, and those working on the jobsite find themselves waiting for proceeds to trickle down from foreclosure or bankruptcy proceedings.
In most states, a filed mechanics lien takes priority below the construction loan bank’s mortgage. Further, the filing of bankruptcy usually defeats any lien rights.
In Virginia, however, the opposite is true. A properly filed mechanics lien in Virginia will not get defeated in bankruptcy, and it will have priority over the construction loan bank. Earlier filed mechanics liens have priority over later filed instruments.
We’ve posted in the past on why its important for contractors to lien unpaid construction projects. This review of the powerful lien laws in Virginia stands as a reminder of how effective a mechanics lien can be, and why its important to make your claim timely & properly.
Top 10 Construction Lien Errors
Debb & Derkin, P.A., a law firm practicing construction law in Florida and filing construction liens in that state, published an article listing the Top 10 Construction Lien Errors.
While the article and Top 10 listing is related to Florida lien laws, since most lien laws in the U.S. are substantially similar, the same errors appear time and time again on liens across the nation.
The Top 10 Lien Errors highlight by Mr. Debb in the article are:
- Failure to Timely Serve Notice to the Owner
- Failure to Serve Notices on Proper Parties
- Failure to Serve Notices by Proper Method
- Contingent Payment Clauses
- Overstatement of Amounts Due and Owing
- Failure to Respond to Sworn Statement Requests
- Failure to Timely File a Claim of Lien
- Failure to Provide Copy of Claim of Lien
- Failure to Foreclose on Claim of Lien within Time Required by Statutes
- Failure to Secure Proper Licensing
Express Lien, Inc. is experienced in filing construction liens in states across the country, and ensuring that your lien is filed professionally and accurately. Trust your next construction lien to our professionals.
It’s why we say: Lien Smarter…Get Paid.
So What Is A Mechanic’s Lien?
The “construction lien” goes by many names in the United States: Claim of Lien, Statement of Claim or Privilege, Mechanics Lien, and more. And while the name and technicalities are different from state-to-state, construction liens generally operate similarly across the nation.
So what exactly is a mechanic’s lien?
When you run a Google search for “Mechanic’s Lien” an entry from Wikipedia is the first result. According to the collective Wikipedia editors, a mechanic’s lien is “a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property.” Read the full Wikipedia entry here.
The entry goes on to state that liens exist to “protect the contractors.”
Here are some general theories to keep in mind when trying to understand construction or mechanics liens:
- In general, those who perform labor or supply materials on a construction project will have the right to lien the project;
- The method of filing a construction lien varies state-by-state;
- Your lien must be filed within a defined timeframe;
- If your lien does not produce payment, you will need to “perfect” or “foreclose” on your lien within a defined time period.
To learn more about your state’s requirements, click on your state’s name in our blog’s navigation. Or check out your state’s requirements at the following charts:
Quick Guide to Lien Timelines - Chart of Lien Filing Deadlines
State-By-State Notice Requirements Chart
What You Need to Know About Liens
Lien statutes are complex and technical in every state, but throughout the country common themes and policies emerge.
If you’re in the construction industry, it’s important to know these policies, and specifically it’s important to know how to use a lien and how liens can help your business.
1. Liening a project starts before work even begins
The urgent need to lien a project usually strikes a company after a job’s completion, but in many situations preserving lien rights requires serious consideration before work even begins and any dispute arises.
While pre-lien requirements are not applicable to every project and organization, one of the most common liening mistakes is for an organization to neglect pre-lien requirements and thereby abandon their lien rights.
The most common pre-lien requirement is the need to give the property owner notice of the lien laws.
Simply stated, the laws in most states require a contractor to notify the property owner that it may lien the project if it is not paid.
The notice must be delivered – in most cases – before services are rendered or materials are delivered.
An article on Louisiana notice requirements, plus some applicable forms, can be found here.
An article on Washington’s requirements, plus some applicable forms, can be found here.
One common misunderstanding about lien notices is that they are only required to be sent before liening a project.
Do not fall prey to this myth.
Lien notices, when required, most always require delivery before work begins, and not simply before the lien is filed. If you fail to preserve your lien rights with the proper notices, you’ll forever lose your right to lien that construction project.
2. Your lien rights won’t last forever, or for very long
If there is any delay in getting paid on a construction project consider filing a lien immediately. Many companies lose their right to lien a project because they wait too long to file.
The window of opportunity to file a lien is short, and once you’re time expires, you lose this powerful collection tool forever.
If payment isn’t on-time, protect your company’s interest in the property, and file your lien immediately.
3. A lien is the first step, not the last step
After filing a construction lien, you will certainly have more work ahead in attempting to collect.
In many cases, a construction lien by itself will result in prompt payment. In these cases you will likely be charged with the duty of canceling the lien.
This can be as simple as drafting a final letter and sending it to the property owner, or executing and notarizing a formal lien cancellation certificate (depending on state requirements).
If the lien does not produce payment, it will be necessary to take an additional collections step. Contrary to popular belief, construction liens are not permanent. In fact, they normally don’t last very long at all and they cannot be renewed.
After filing a lien, if not immediately paid you will need to bring an action in court to “foreclose” or “enforce” the lien in some way. This process essentially converts your construction lien into more formal and permanent “judgment.” The judgment can be executed by seizing property and through other techniques.
