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.
The Risks of Litigating a Washington Construction Lien
Our friends at Wolfe Law Group have just started publishing a new blog that focuses on construction law issues in the Pacific Northwest, and specifically in Washington and Oregon. So, subscribe to their feed and check out that blog to keep tabs on construction (and lien) issues in those states.
Their first post is of special interest to us in at the Construction Lien Blog. It’s title gives away its substance: “The Risk of Litigating a Washington Construction Lien.”
More than simply a discussion on how to actually dispute a mechanics lien, the post reviews the potential risk and rewards connected to any proceeding to have a lien overturned. While this post obviously provides information to those looking to dispute a mechanics lien, it’s also revealing to those who hold or who are filing liens.
In Washington, anyone who disputes a lien faces potential risk…or reward. If they win and the lien is overturned, they may be entitled to attorneys fees. If they lose and the lien is upheld, the lien claimant will be entitled to attorneys fees. Since lien dispute proceedings can cost thousands in attorneys fees, the Washington laws require parties disputing a lien to think long and hard about whether to bring this type of action.
Why is this important to those who hold or are filing liens? Simple: It demonstrates just how strong a construction lien can be.
In prior posts, we wrote about how construction liens are not typically invalid simply because someone claims payment is not due. Usually, for a lien to be declared invalid, there must be some sort of facially or procedural defect with it (it is filed late, it does not properly describe the property, etc.).
These technical and procedural defects may lead to a lien’s demise…but other very critical issues (validity of back charges, change orders, timing of payments, etc.) will likely not. So, while both parties may have arguments on each of these disputed issues, before using those arguments to dispute a construction lien, the disputing party will have to consider the risk.
And in Washington, there is quite a bit of risk.
The Importance of Knowing When Your Lien Period Begins
In nearly every state, the construction lien statutes require that claimants record their mechanics lien withing a certain “lien period.” The start of the lien period has a specific beginning date, and the lien period usually extends for a period of days or months from this start date. Mechanic liens filed outside the lien period are typically unenforceable.
Knowing when the end of the lien period arrives is important, but perhaps not as important as knowing when the lien period begins. After all, without knowing the start date, it’ll be impossible for you to calculate the end date.
In most states, the lien period will begin upon the “completion” of the project as a whole, the “completion” of your particular scope of work, or the “last date” you furnished labor and/or materials.
While this may sound like a straight-forward requirement, it is not always so. In many states (if not most states), labor and/or materials necessary to perform remedial, punch list items, or warranty obligations are generally not considered in establishing the completion date or the last date of providing work. Contractors and suppliers, therefore, can theoretically have the lien period begin days, weeks or months before they are off the job.
The problem here is clear: Sometimes, owners or other contractors hold progress payments until the warranty or punch list work is complete. In theory, your lien period could expire before you’re ever “unpaid.”
Knowing when your lien period begins is critical. And sometimes, to preserve your lien rights, you may find it necessary to file a lien before the project is finally complete, and before payment has become a major point of contention. (Read two articles on this issue here: Re: California law and Re: Ohio law).
Our free Lien Pilot helps your company calculate and control lien deadlines. Once you put in the critical date (i.e. date last labor / materials furnished), the Pilot will calculate the due date for your lien in the applicable state and on the applicable project. However, for this calculation to be accurate, it’s important to know when that date is.
Every state’s law is different, and so you should consult the law in your state to determine exactly when your lien period begins.
Washington Law Protects Contractors from Dangers of Frivolous Lien Statute
A quick word from the construction law case files:
The Court of Appeals, Division 1, out in Washington state, has refused to deem a construction lien as frivolous based upon the complexity of the construction contract at dispute. The court in SD Deacon Corp. of Washington v. Gaston Bros. Excavating, Inc., decided back in May of this year, that the state’s “frivilous lien” statute, coded under RCW 60.04.081, requires a more in-depth analysis of factual circumstances surrounding the substance of the contract and the lien.
The court in SD Deacon further reasoned that a court can only evaluate in a frivolous lien proceeding are, by way of example, whether the lien was properly filed, signed by the proper party, properly served, and meets the statutory form requirements. Issues of substance of the lien (i.e. the contract amount, amount due or change orders) are issues which require more substantive proceedings to analyze factual circumstances.
Because the frivolous lien procedure codified in RCW 60.04.081 does not provide for such proceedings, a party seeking to extinguish a lien filing will be unsuccessful in attempting to show to the court that the lien was frivolous.
Essentially, the court’s new rule is that the “lien must be so devoid of merit that the claim has no possibility of succeeding” and that “there must be findings supporting the conclusion that the lien is invalid beyond legitimate dispute.”
The Court’s ruling provides some hope for “fringe” contractors who’s claims hold some element of uncertainty, but who desperately need the security provided by a lien in order to collect payment from an uphill contractor or owner.
The frivolous lien statute was enacted to prevent fraudulent claims against contractors, by awarding successful parties attorneys fees. The ruling in the case shows that the award of fees will not be granted unless your lien fails to meet statutory form requirements.
Express Lien, Inc. has the knowledge and experience to meet these stringent requirements. Let us help you ensure your lien’s success!
Great Information on Massachusetts Lien Laws at the Massachusetts Builders Blog
Massachusetts construction attorney Andrea Goldman operates a great blog for builders, contractors, subcontractors and other construction industry professionals in the state. You can also visit her law office online here.
The Massachusetts Builders Blog has recently posted a string of blog articles about mechanic lien laws in the state – they are must-reads for anyone doing construction in Mass.
- Who Can File A Mechanics Lien in Massachusetts
- The Strength of a Mechanic’s Lien
- Filing Mechanic’s Liens in Mass. – How to Avoid Mistakes
- Difference between Mechanics Liens and Real Estate Attachments
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:
- 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.
- 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.
- 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.
- 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.
Virginia’s Interesting 150 Day Rule
In most states, a contractor only has 1 lien deadline of concern: when the lien must be filed. In Virginia, however, contractors must juggle two lien deadlines.
First, like other states, Virginia has a regular lien filing time requirement. All liens must be filed within 90 days from when labor and services were last performed by the contractor.
Unlike other states, however, Virginia has an interesting second deadline, referred to in the state as the “150 day rule.”
From the last day of work, the claimant must count backwards 150 days. Generally speaking, a contractor is not allowed to include any labor or materials supplied outside this window in its mechanics lien.
While the 150-day rule does not apply to retainage funds or sums not yet due because of a “pay when paid” clause, it usually applies otherwise, and will invalidate a lien if it includes sums due not within this 150-day window.
As mentioned in a previous post about the “payment chain” in Virginia, an arguable third deadline of concern in that state, subcontractors and suppliers in Virginia have extra motivation for filing liens immediately upon non-payment. The 150-day rule in Virginia is even further cause.
Caution: Lien Laws in are Hyper-Technical
In most states, the liens laws are hyper-technical. This means that the laws have many requirements, and that courts strictly construe the rules against the party filing construction liens.
This is true for nearly every state.
While laws across the nation provide lien rights to those in the construction industry, because of the power of these instruments most states require that the liens be filed in exact accordance with the law to be valid.
This is especially the case with regard to the required contents of a lien.
Each state has different requirements for what must be stated within a mechanic’s lien, and how that information must be stated.
Every state, for example, will require the claimant to identify the property being liened. In Louisiana, Washington and Virginia, however, the law requires that the lien use the legal property description and not simply a municipal address. The proper identification of property can be so important we’ve written an entire blog post about it here.
In Virginia, the laws are even stricter. Because the Virginia lien law is land record based, the claimant is expected to perform a complete title search to acquire the exact legal owner and legal property description. A lien that does not lien the exact owner, at the exact property for the exact amount due, can be deemed invalid by courts.
Express Lien does this leg work for your company, helping your company properly prepare these important legal forms. Our professional legal document preparers are familiar with the lien and notice forms in your state, and can help your company Lien Smarter.
Can Unlicensed Contractors Lien in California?
In California, like in every state, those who perform labor or provide materials to a construction project obtain a right to lien the property. In fact, this lien right is even built into the California constitution.
However, every state’s lien laws has complex requirements. A question that is frequently asked is whether an unlicensed contractor has the right to file a construction or mechanics lien.
Of course, the answer to this question varies state-by-state. Further, one must remember that in most states, the fact that a person is unlicensed is not necessarily controlling as licenses are not required in every situation.
As it regards the state of California, the question was discussed in a legal column of PressBanner.com. Gary Redenbacher says:
But what about unlicensed contractors? By law, unlicensed contractors are not entitled to be paid — period — for anything. Even if they do a perfect job and put $300,000 of materials into your home, they will be thrown out of court if they sue to get paid. Since unlicensed contractors cannot turn to the law to be paid, any lien they record is a false lien.
Contracting without a license is a misdemeanor. Recording a false lien in an attempt to get paid might just jump an unlicensed contractor from the frying pan into the fire.
One of the most critical mistakes any contractor can make when filing a construction lien is not being qualified to file one at all. In California, its pretty clear that unlicensed contractors are completely without lien rights. Elsewhere, if you’re performing construction work without a license, you should be extra-cautious before filing a construction lien, as you may not be qualified.
