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.
Avvo Legal Guides on Oregon and Louisiana Liens Published
Want a step-by-step guide on how to file construction or mechanic liens in Louisiana or Oregon? Your call has been answered this weekend with the publication of Avvo Legal Guides on both these subjects, which you can view here:
How to File a Construction Lien in Oregon
How to File a Construction Lien in Louisiana
These two legal guides offer plain english explanations on how to prepare and file a construction lien in either of these states. After reading the guide, you can visit Express Lien’s free Lien Punchlist & Forms center, where you can download more information about on the subject, and even download free PDF-fillable lien forms.
Want to dot your i’s and cross your t’s, and rest easy knowing your document will get filed? Consider using the Express Lien service to prepare your lien, file and serve it, and then store it online for your records.
The two above-listed legal guides were written and published by Scott Wolfe Jr., who is the founder of Express Lien and the company’s President. Separate from Express Lien, Scott is a practicing construction attorney in Washington, Oregon and Louisiana, with his construction practice the Wolfe Law Group.
He previously published a similar legal article on Avvo.com about filing construction liens in Washington, which you can read here.
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.
The North Carolina Mechanics Lien Scheme
Like most states, North Carolina has laws allowing those who provide labor or materials or rental equipment to a construction project to “lien” the project in the event of non-payment.
While the general availability of filing a lien is a simple rule in North Carolina, it is more complex to determine how a party can file in the state. The manner of filing a lien in North Carolina depends on the claimant’s role in the project. We take a shot at explaining the North Carolina lien scheme in this post, and compare it to how liens are filed in other states like Washington and Louisiana.
Those Who Contract With The Owner:
Those who contract with the “owner” on a North Carolina construction project, and who are not paid for labor or materials, may file a “traditional” mechanics lien with the county recorder.
The lien must be filed within 120 days from the last date labor or materials are furnished to the project, and must follow other formalities required by statute. These formalities are set forth in N.C. Gen. Stat. § 44A-12, which also provides a form to be used when filing.
This lien actually attaches to the property at controversy, affecting the property’s title.
Those Who Do Not Contract With The Owner:
For those who do not contract with the property owner, the North Carolina lien scheme offers two possible remedies.
First, a “Notice of Claim of Lien Upon Funds” is something that is delivered – and not filed – to parties “up the contract chain.” This requires those up the chain to put a freeze on funds that may be due the claiming subcontractor. If a Notice of Claim of Lien Upon Funds is delivered to the Owner, and the Owner thereafter disburses funds to the general contractor, the claimant can then escalate its notice into an actual lien.
Second, a “Subrogation Lien” is filed by a sub or lower-tier sub within 120 days from when the general contractor last performs work, and may be filed only if a Notice of Claim Upon Funds was delivered to the Owner and some amount of money is due to the GC from the Owner.
Both of these lien remedies are discussed below in this post.
Claim of Lien Upon Funds
The rules are a bit different for those parties to a construction project who do not contract with the owner. Who are these parties? Subcontractors, Second-Tier contractors and suppliers, Third-Tier contractors and suppliers, etc.
Unlike parties who contract with the owner (i.e. generals), lower tier contractors cannot file a ‘traditional’ lien. Instead, these contractors protect their right to payment by serving a “Notice of Claim of Lien Upon Funds.” The requirements for this notice is set forth in N.C. Gen. Stat. § 44A-19.
This notice does not affect a property’s title, and it is not filed with the county records. Instead, it is served upon every party “up the chain” from the claimant.
So, for example, a first tier subcontractor would deliver notice of claim to the owner and the general contractor.
While a traditional lien provides a claimant a lien on the property, this type of lien provides the claimant only with a lien on the funds at controversy. After receipt of the notice, if the owner or other party makes payments down the construction chain with funds that are liened (i.e. eventually belong to the claimant), the party who improperly made the payment will be personally liable to the claimant for payment.
If the party is the owner, the claimant may then file its notice with the country recorder.
Lien Through Subrogation
In addition to the “Notice of Claim of Lien Upon Funds,” subcontractors and lower-tiered subcontractors can also file a mechanic’s lien against the property through “subrogation” of the general contractors right to lien.
With this type of lien, the lien claimant must: (1) have served a Notice of Claim of Lien Upon Funds to the property owner; and (2) the general contractor must be owed money from the owner. The subrogation lien must be filed within 120 days from when the general contractor last furnished labor and/or materials to the project.
Comparing with Other States: Louisiana and Washington
One of the problems with lien statutes across the country is balancing the rights of laborers and materialmen to get paid with the interests in protecting a property owner from being required to pay for the services twice, and to have its property title illegiatemly affected.
Different states balance these issues differently.
In Washington, lower-tiered contractors are required to provide the owner with notices prior to filing a lien.
In Louisiana, there is a focus on the public records, allowing owners to file notices in the public records that affect the interests of lien claimants.
North Carolina balances these issues differently, essentially allowing only those who contract with the owner to immediately affect a property owner’s title. If the contract is not with the owner, the lien at first only affects the funds. If the parties continue to refuse the claimant payment, the problem grows, and more parties become personally liable for the debt and the property’s title is at stake.
Express Lien’s Services:
Express Lien prepares, files and serves both “Liens’ and “Notice of Claim of Lien Upon Funds” in North Carolina.
With regard to “Liens,” filed by those who contract with the property owner, there is a $295.00 flat charge which includes the document preparation, filing and service upon interested parties. Also, liens that are recorded by subs and those who did not contract with the owner are also $295.00.
With regard to “Notice of Claim of Lien Upon Funds,” which are delivered and not filed, these are considered a notice, and are charged our low flat fee for preparing and delivering notices.
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.
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!
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.
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.
How To Cancel a Washington Lien
Every state has strict regulations about how a construction lien may be filed. Oftentimes, however, the cancellation of a construction lien may be more difficult than its filing.
In most states, a “lien release” or “certificate of cancellation” must be filed with the recorder where the lien was filed, and these releases are typically required to identify the property, identify the recording information on the lien (i.e. book #, page #, etc.), and be notarized.
This requirement to provide the recording information and book number highlights the importance of retaining a copy of the original lien document. Furthermore, in some states, the actual original lien document is required to cancel the inscription (In Georgia, the county recorder requires an original copy of the filed lien to grant a cancellation).
The process in Washington state is rather simple. The “lien release” direction is provided by state, in R.C.W. § 60.04.071:
“Upon payment and acceptance of the amount due to the lien claimant and upon demand of the owner or the person making payment, the lien claimant shall immediately prepare and execute a release of all lien rights for which payment has been made, and deliver the release to the person making payment. In any suit to compel deliverance of the release thereafter in which the court determines the delay was unjustified, the court shall, in addition to ordering the deliverance of the release, award the costs of the action including reasonable attorneys’ fees and any damages.”
The “lien release” document is a simple form that essentially provides three pieces of information:
- The recorded lien’s identifying information;
- A statement that the lien is requested to be released; and
- The statement must be notarized.
A Washington lien cancellation or lien release form may be downloaded here for free:
Express Lien, Inc. prepares and files lien cancellations for the flat fee of only $125.00. Using Express Lien to prepare and file your lien cancellation is simple, and you get the benefit of having your lien cancellation professionally prepared and filed, and stored on our secure servers for your 24/7 use and availability. Lien Smarter by Getting Started Now.
What’s Inside A Lien?
So what exactly is required to be within a construction lien? Each state has statutes that set out very specifically what a “claim of lien” or “mechanics lien” must contain to be considered valid.
Since lien statutes are typically “hyper-technical,” even the smallest mistake can cause your lien to be considered worthless by a court. Hiring an experienced legal document preparation service like Express Lien helps ensure that your liens meet the technical filing requirements and protect your company’s right to payment.
A construction law firm in Seattle, WA and New Orleans, LA – Wolfe Law Group – just published an article on their blog about the contents of construction liens in Washington and Louisiana. The article, titled “The Guts of a Construction Lien,” gets very specific about what must be recorded with every claim of lien in those states.
Take a look at the article for more information – they even provide readers with construction lien forms for both states at no charge.
