I Didn’t File My Lien On Time…Now What?

Over the weekend, I answered a question over on Avvo.com about mechanic liens that gets asked very often, and I thought it was a good idea to share here.

The question is this:   What are my legal rights as a contractor if my lien is not filed on time?

The question was asked related to Washington law, but the answer is applicable around the nation.   Mechanic liens are an excellent remedy – and I highly recommend preserving and using these rights when needed.   However, they are not a contractor’s only remedy.

What other rights does a contractor have?  Take a look at my answer here:

Liens are a terrific remedy for contractors. If you’re unpaid and file your lien on time, you acquire security rights against the property itself and are legally able to file suit against parties who you did NOT contract with (i.e. the property owner, if you are a sub).

However, if you don’t file a lien, you still have plenty of legal rights to recover what is owed to you.

Your rights, however, are exclusively against the party who you contract with. You have an action against them for breach of contract. The period to bring this suit is quite a bit longer, between 3-6 years, depending on the type of contract.*

*This is the statute for Washington.  Remember that the statute of limitations will be different depending on your state.

It’s important to contact a great construction attorney to bring a breach of contract suit if you are unpaid, and are too late to proceed with lien rights.    Find a construction attorney in your area at Avvo.com.

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.

What Happens After You File A Mechanics Lien

So, you fulfilled all of your notice requirements and you filed your mechanics lien on time.  The other party still hasn’t made payment, and you begin to wonder…now what?

Why Mechanics Liens Work

First, before discussing what happens after the lien is filed, let me first address why mechanics liens are effective ways to collect on non-paying projects.

This is an important point when discussing what happens after a mechanics lien is filed because it touches on why mechanics liens sometimes prompt payment without any further action after the filing itself.

Mechanics Liens are effective for the following reasons:

- Without a mechanics lien, you can only sue the party you contracted with.  With a lien, you can sue the property owner, those up the contracting chain from you, and the surety bonding the project.

- A mechanics lien can prevent a property from being sold, transferred or refinanced

- Without a mechanics lien, you have no security when you file suit on your breach of contract claim.  With a lien, your claim has the property has security.

This is a perfect storm of aggravation to the project and the parties working on the project, that frequently results in getting you paid without any action beyond filing the lien.   See how it worked on the MGM Project in Vegas here.

What Happens Next?

But what happens if your mechanics lien does not produce immediate payment?  See article on this topic here.

Most states require the lien be “enforced” or “foreclosed.”   This typically means that you bring a lawsuit against the person you contracted with and/or the other relevant parties (property owner, prime contractor, surety, etc.).    In most circumstances, the lien stays on the books while your action is pending, and if you win…you have the security of the property to ensure you get paid.

It is very important to recognize that you only have so long to enforce or foreclose on your lien.   If you fail to do this within the specified time frame…your mechanics lien will expire completely.

The time you have to enforce or foreclose on a mechanics lien varies depending on the state where the project is located.   We have Construction Lien Law Summaries, and specifically the time period to enforce mechanics liens from each state, available on our State-By-State Lien Law Summaries and Forms Page.

And don’t forget about Zlien’s Lien Pilot, which calculates your project’s deadlines for you (including your deadline to foreclose / enforce a mechanics lien).

What Happens When My Lien Expires?

Well, this is a pretty sensitive subject.   You can always bring your lawsuit against the party in your contract (if you are within the statute of limitations for your state).

But with respect to the mechanic lien’s viability, Kelly Davis has a great article published on her blog on this issue:   Didn’t Foreclose on your Mechanics Lien?  What Should You Do Now?

A Catch-22: Pay When Paid Clauses Do Not Extend the Lien Period

If you search “Pay When Paid Clauses” in Google, you’re going to get a lot of results that say a lot different things.   This contractual provision – used in almost every general / sub construction contract – is perhaps one of the most confusing or misunderstood provisions out there.

Wolfe Law Group’s Construction Law Monitor recently blogged about the dangers of using one contract in multiple states.   The post used the “pay when paid” provision as an example of why multi-state contracts are problematic.

The provision itself seems pretty clear:  one party will get paid when the other party gets paid.    It isn’t.   Interpretation of this provision varies by state, with some states striking down the provision entirely as against “public policy” and other states distinguishing between “pay when paid” provisions and “pay if paid” provisions.   The only way to protect your company against this tricky provision is to consult with an attorney about how these provisions are treated in your jurisdiction.

While interpretation of “pay when paid” provisions differ from state-to-state, there does appear to be one constant about this provision across the country:   It doesn’t extend your lien period.

Most states require liens be filed within a certain period after you last worked on the project, or after the project is complete.   The fact that you or your company is waiting for payment because the prime or an upper-tiered sub hasn’t been paid is completely irrelevant.  The lien period still starts when it starts, and ends when it ends.

As you might imagine, this presents a bit of a Catch-22.

On the one hand, you must file a lien to preserve your right to lien.  On the other hand, filing a lien may complicate the payment problems for the prime or upper tier sub (and thus your payment problem), and may cause animosity when negotiations are otherwise calm.

Unfortunately, there is  no easy fix for this complication.    Each situation should be examined individually, and sometimes, a simple joint check agreement may be the solution.  It’s just important to remember that good faith negotiations and waiting for payment under a contractual obligation to do so will not likely extend the lien period, and too much talk could result in the loss of lien rights.

Here are some great resources and articles on Pay When Paid provisions:

- Fourth Circuit Concludes Pay When Paid Clause is Unambiguous and Enforceable

- Pay When Paid or Pay If Paid Provisions

- Is Your Pay When Paid Clause Worthless?

- Contingent Payment Clauses, Use With Caution

Are Texas Lien Deadlines Most Complex in Nation?

Generally speaking, lien laws and deadlines are complicated. The Texas lien statutes, however, may be among the most complex in the nation.

When calculating your deadline to file a lien, there are two features that distinguish the Texas framework from other states.

First, rather than requiring your lien be filed within so many days from the last day of providing labor, the Texas statutes calculate the due date by months, with confusing language like “by the 15th day of the month ___ months after lien claimant completes work.” Second, the notice requirements differ by project, use the same confusing calculation method, and in some circumstances require contractors to re-serve the notice month after month.

One law firm in the Dallas-Ft Worth area has gone so far as to publish a blog post each month with the lien deadlines for work performed during that month.

On our Lien Law Punchlists page, we’ve compiled two charts from lien deadline information published by Texas law firms.   A contractor and supplier can quickly look at this chart to determine when its lien and notice is required.    One is the Lien Deadline Chart and the other is the 2 and 3 Month Notice Chart.    You can also look at our Texas Lien Law Punchlist for a more wordy explanation of these charts.

Free Forms and Resources on California Liens and 20-Day Notices from Sacramento Public Library

The Sacramento County Public Library has recently published a page with a good overview of the California lien laws, as well as links to forms, websites and other resources that can help contractors and suppliers understand and utilize liens.

The page leads off with this pithy summary of lien laws in California:

A Mechanics’ Lien is an effective remedy for contractors, subcontractors, and others involved in the construction or improvement of real estate to resolve payment problems. If a service or materials provider records a Mechanics’ Lien against the real estate being improved, the owner can not easily sell or refinance the property without first paying off the debt secured by the lien. A Mechanics’ Lien motivates the owner to make sure the contractors get paid, and is a prerequisite to filing a foreclosure action on the property.

And provides these resources, useful for anyone wanting to know more about California liens and preliminary notices:

- Nolo Article on California Lien Structure

- Free forms available through Sacramento County Public Library

- Information on how to record documents in California (great basic information about how and where documents like liens get recorded).

Liens Make Your Payment Problem the Entire Project’s Biggest Problem

When you don’t get paid on a construction project, that is a big problem for you and your company.   But, is it a big problem for the entire construction project?    Not likely.

So, how do you make your problem an important problem to the other players working on a construction job?    With a mechanic’s lien, of course.

The Wall Street Journal recently reported on a mega-project in Las Vegas (the $8.5 billion City Center), and a contractor dispute that is affecting the project’s finances.    There was something really interesting about this report for those of us who follow mechanic lien law and news – and that’s this quote from City Center President Bobby Baldwin, referring to over $500 million in liens filed against the project:

Obviously everybody is concerned about the liens.   They have to be explained in great detail to our residential buyers.

To resolve the concern about the liens, the property owner is slowly paying off all of the subcontractor and supplier claims while they proceed with their dispute against the prime contractor.    Without those liens, those subs and suppliers would have to wait months or years for the main dispute to resolve, and payment to trickle down from the owner to them.   Depending on the size of the contract, that’s something that could cripple their business.

The Wall Street Journal article and construction dispute at the City Center was the subject of a blog post on the Construction Law Monitor, which that blog called a “Large-Scale Example of an Everyday Construction Dispute.”    And that summary is perfectly true when it comes down to mechanics liens.

Regardless of how large or how small the project, mechanics liens creates a problem for the project.   If you’re not paid on a construction project, the best way to make your problem the construction project’s problem, is to file a mechanics lien.

What Costs Can I Include in a Mechanics Lien?

I practice law, and focus on construction law, in the states of Washington, Oregon and Louisiana.    Whenever folks are looking to put together a mechanics lien, this is a question that is very frequently asked.  (Previously wrote about it here).

While the question seems quite simple, it’s actually a bit complicated.   And it’s a very sensitive question to boot.   The answer differs depending on which state’s law applies, and some states are more sensitive to the topic than others.   In some states, if the lien amount is listed incorrectly, or includes costs not allowed under law, it could invalidate the entire lien.

In other words, tread very carefully.

So, what is this question asking anyway?   Well, folks are typically looking to include two different costs into the amount of its lien.   First, the cost of filing the lien itself.    This may be the cost of an attorney, the filing fees with the county, or the cost of our service ($295).   Second is charged interest on the unpaid account.   Sometimes this is the state’s judicial interest, or interest allowed by contract.

Let me make something very clear:   This is an extraordinarily complicated question to answer on a general basis.   You should consult with an attorney to figure out exactly what costs you can and should and may include in your lien.

However, let me take a crack at trying to answer this question generally.

In Louisiana, Washington and Oregon, if someone wants a general rule, I always advise my clients to simply file the lien for the amount that is due under the contract, without any of the extras.  I advise this unless there is specific circumstances and law that allow them to do the contrary, and they know the law.   I advise this simply in an abundance of caution for these two reasons:

1) If you include it (the extra costs), and you cannot include it, it could invalidate the lien; and

2) if you do not include, it doesn’t mean you can’t collect it. It just means its not part of your lien, and you don’t have the lien against those particular funds (you still have any legal or contractual right to it).

The Difference Between Public and Private Projects

When it comes to filing mechanics liens and collecting money owed to your company, there is a world of difference between private and public construction projects.   And it’s very important to know the difference between the two.

Why Does It Matter?

Before explaining what distinguishes these projects from one another, let me talk a little about why it matters.

If unpaid on a private project, the laws in most states allow you to file a “mechanics lien” against the property.   This gives your company an actual interest in the real estate your labor or materials improved.   The lien must be filed within a particular period of time, and if the lien is not paid, you’re required to “foreclose” upon the lien to obtain payment, which could result in the property being sold at auction to obtain the funds to payoff your claim.

If unpaid on a public project, there is a much different experience.

Generally, your company is not able to file a “mechanics lien” against a public project because most states (and the federal government) prohibit any party from gaining an interest in public property.   As a result, most public construction projects may only proceed if a “payment bond” is issued.    In the event of non-payment on a public job, rather than file a lien the unpaid party will file a “claim” against the bond.   Instead of foreclosing on the property, the claimant will “foreclose” – so to speak – against the lien, eventually resulting in payment.

What is the Difference Between Public and Private Projects?

Easy.

99 times out of a 100, a project is private when owned by a private person or entity, and is public when owned by the government.

When the government is the United States or a federal agency, the applicable rules are found within the “Miller Act.”   We’ve written a good deal about Miller Act rules and claims here at the Construction Lien Blog.    When the government is the state or a state agency, the applicable rules are usually found within a “Little Miller Act” statute.    These vary state-by-state, a great resource on little miller acts across the country is linked below (and here).

Be very careful when performing work on a private school (i.e. private university) or for a non-profit agency, and even large public corporations.   We sometimes think of these types of organizations as “public” agencies, but that does not necessarily render them a “public construction project.”    Usually, such a designation is reserved for land and projects owned by the federal or state government.    If you’re unsure, it’s a good idea to ask, or to hire an attorney to research the question.

GREAT Resources for Public Lien Laws and Public Contracting Issues

Here are two great resources for folks looking to learn a little more about public contracting in general, and about bond / lien claims against public projects.

1)  Mike Purdy’s Public Contracting Blog:  Mike Purdy is a retired public contracting consultant out of Seattle, WA.  His frequently updated blog addresses public contracting questions and laws across the country.

2)  Law Office of David Bransdorfer Miller Act Summaries:   This website, offered by a New York law firm, provides summaries of the Miller Act, and each state’s version of the Miller Act.  It’s a great place to start researching the applicable public contracting claim / lien laws in your state.

Great Avvo Legal Guide Available With Information on Florida Lien Laws

Florida attorney Neal Ian Sklar just this week published a really informative Legal Guide about Florida Construction Liens over at the lawyer rating website, Avvo.com.

The guide starts out by identifying the “dual purpose” of Florida’s construction lien statutes.   While the author is speaking about Florida law only, the “dual purpose” breakdown is really applicable across the country.

What is this dual purpose?

Well, on the one hand, lien statutes are crafted to protect contractors, subcontractors, suppliers and design professional’s right to get paid for work put into a project.   The law, in other words, doesn’t want a property owner to benefit from the improvements to property without paying the folks who put the time and materials therein.

You may be thinking “of course.”

The other purpose is a bit more hidden in the statutes.   That purpose is to protect property owners from having their property improperly or unreasonably encumbered.

To balance these two purposes, lien laws across the country can sometimes feel schizophrenic.

Neal’s legal guide over on Avvo discusses the Florida lien laws in this context, and he does a good job of explaining how the two purposes are served by the Florida statutes.

While lien laws vary from state-to-state, understanding the “dual purposes” of these statutes provides contractors, subcontractors, suppliers and others a big picture understanding of how these statutes work…which, although each state’s laws are different, gives them a good grasp on the general rules they’ll need to follow to successfully use the laws.

And when a state’s specific requirements are needed…consult a great legal guide like Neal’s.