Changes to Lien Law Pending in New Jersey and Michigan Legislatures

Courts around the country are constantly construing the mechanic or construction lien laws, making compliance with these statutes sometimes feel like a moving target.    A recent case out of the Washington Court of Appeals confirms this theory, which overturned a previous decision three years after-the-fact, to completely change the way liens must be signed by corporations in Washington state.

But it isn’t just the courts that change mechanic lien laws.   State legislatures are constantly proposing bills that will alter the lien statutes completely.   Currently, two such bills are pending in New Jersey and Michigan.

The Michigan Mechanic Lien Legislation

The Michigan legislation is actually getting a great deal of coverage on Twitter (yes, twitter).   See twitter posts from the legislature, and a legislator, here and here.    This particular bill’s summary provides that it “would amend the Construction Lien Act to repeal provisions concerning the Homeowner Construction Lien Recovery Fund (HCLRF), which is essentially insolvent, and cannot meet the demand for claims from the fund.”    Read about House Bill 5830 at the Legislative Website here.

We actually wrote about the problems with the Lien Recovery Fund back in January (Michigan Lien Recovery Fund Raises White Flag).

While a good idea on paper, the Lien Recovery Fund just couldn’t make ends meet.   This legislation in Michigan is almost a foregone conclusion, as the fund itself is insolvent.   The bill is just formally closing the book on it.

The New Jersey Mechanic Lien Legislation

The legislation pending in New Jersey, in comparison to the Michigan legislation, may have a bit more of an effect on that state’s mechanic lien statutes if passed.   The bill doesn’t aim to make substantial change to the mechanic lien requirements, but many contractors and suppliers in New Jersey may be effected by the suggested changes.   Read about NJ Assembly Bill 410 at the Legislative website here.

Here is a quote of the bill’s summary:

This bill revises the “Construction Lien Law,” which was enacted in 1993, by:
(1) clarifying and adding certain defined terms, to conform to actual construction industry usage;
(2) clarifying procedures for the filing and amending of the lien claim and for the calculation, distribution and enforcement of the lien fund;
(3) providing more specific provisions for discharging a satisfied lien claim;
(4) further defining the arbitrator’s role;
(5) modifying time limits for filing and perfecting residential construction contract lien claims;
(6) specifying the application of lien claims to community association property; and
(7) addressing certain ambiguities as to mortgage priorities with respect to lien claims.

We’ll monitor these bills and keep you update.

Washington Appeals Case Confirms Lien Requirements Are Technical, But Fighting Liens Risky

Alan Middleton of the Washington Construction Law Blog published a pithy update to its site last week concerning mechanic liens in Washington State.   In “Battle of the Lien Forms:  Claims of Lien Must Strictly Comply with the Lien Statute,” Alan reports on a recent Division II appeal decision that “underscores the need…to comply with the lien statute.”   The case is Williams v. Athletic Field Inc.

Alan’s right.   This decision really accentuates just how technical lien statutes are in Washington.  More interesting to me, however, was the decision to award the loser of the suit attorneys fees, which accentuates how risky it is to litigate the validity of a Washington construction lien.

Form, Form, Form – How to Sign A Lien

RCW 60.04.091 requires all mechanics liens to be “signed by the claimant or some person authorized to act on his or her behalf…”  The statute itself has an example form for the lien (see here), and a specific form for the claimant’s or agent’s signature.

The Division II decision released just last month (March 2010) was actually a re-consideration of the original decision.  On the matter’s first hearing, the appeals court ruled that a lien filing corporation could sign on behalf of the claimant, as the statute allows an authorized agent to sign the lien.   The court was then urged to reconsider its decision, and specifically consider the manner that the lien filing corporation signed the document.

The lien filing corporation was a corporation, and they signed the lien for the claimant using the general form provided by the legislature.   The property owner argued that the lien corporation was required to sign the lien using the corporate form for authenticated signatures in Washington.

The form used by the lien filing company stated as follows:

I am the claimant (or attorney of the claimant, or administrator, representative, or agent of the trustees of an employee benefit plan) above named; I have read or heard the foregoing claim, read and know the contents thereof and believe the same to be true and correct and that the claim of lien is not frivolous and is made with reasonable cause, and is not clearly excessive under penalty of perjury.

However, the Court held that 60.04.091(2) requires the notice of claim be acknowledged pursuant to Chapter RCW 64.08.   Therefore, despite the “lien form” in the statute having the above attestation clause, since a corporation was signing the attestation clause should have complied with RCW 64.08.070, and have the following form for corporate acknowledgement:

On this ___ day of _____, 20___, before me personally appeared ________, to me known to be the (president, vice president, secretary, treasurer, or other authorized officer or agent, as the case may be) of the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument and that the seal affixed is the corporate seal of said corporation.

The attestation was not sufficient, and because of this technical defect, the lien was declared null and void.

Lien Declared Invalid, but Lien Claimant Wins Attorneys Fees

Earlier this year, I wrote a blog post about the risks of litigating a construction line in Washington.    This Athletic Field decision really underlines the risks of litigating a construction lien.

According to RCW § 60.04.081(4), if someone files suit to have a construction lien removed from property records, someone is going home with attorneys fees.    If the lien is declared “frivolous and made without reasonable cause, or clearly excessive,” the property owner or interested party gets attorneys fees.  If the lien is not declared “frivolous,” the lien claimant gets attorneys fees.

There’s just one wild card:  “Although all frivolous liens are invalid, not all invalid liens are frivolous.”   Intermountain Elec., Inc. v. G-A-T Bros. Constr., Inc., 115 Wn. App. 384, 394 (2003).

So, what happens when a lien is declared invalid, but not frivolous?    That’s exactly what happened in Athletic Field.

The Court in Athletic Field held that while the lien was invalid because of the erroneous attestation clause, it was not frivolous because construction of §60.04.091 presented a debatable issue of law.    The result:  Athletic Field, the lien claimant, lost its lien right but was awarded all of its attorneys fees in defending the action to declare the lien invalid.

So, the loser was awarded attorneys fees.

What This Means

This decision largely means three things:

1. Make sure your lien meets the technical requirements of the lien statutes
2. Washington liens are very powerful, because even invalid liens are risky to litigate and invalidate
3. If you want to challenge a Washington construction lien, tread carefully