When Close is Not Enough

No one has ever begged me to write an article on the construction lien law. My last article was about legal fees, and, like Superman in the presence of kryptonite, I had a moment of weakness in the presence of that subject. In that moment, and in the last article, I promised to write about construction liens. In my defense, I really believe licensed builders and subcontractors need to know how to get paid when they do their work, and owners need to know that they could pay twice for work done if they don’t understand the effect of construction liens. My reluctance is that it’s now clear to me that an article such as this may be so incomplete as to be misleading.

With the above warning, I offer you a contract of my own. I will never wire your house, or put plumbing in. Promise me you will not try to understand or handle your own construction lien problem. Liens are an artificial law. Technically these are called remedial statutes. That means they are not common law. They are laws by which the legislature tried to fix the fact that contractors and subs sometimes put value in a building owned by others, and it is unfair for that contractor or sub not to get paid. But as a remedial statute, every court understands that the statute must be followed exactly. Close is not good enough, and last year’s form or law has sometimes changed. Even though the change is small or the form is close, unless it is exactly what the law requires now, it will be a time bomb. This law is so incendiary that if you file a claim of lien and are for some reason unsuccessful in foreclosing it, all the parties affected by claim of lien are entitled to collect their legal fees.

Construction liens, unless handled by a lawyer familiar with them, are like a loaded pistol in the hands of a child. Whether you are a contractor trying to get paid or an owner trying to free himself from bills that shouldn’t be paid, don’t do it without a lawyer who knows construction lien law.

  1. Every building and every substantial rebuilding begins with a Notice of Commencement. That NOC will name the owner, the contractor, the property, and more. Every piece of information on the NOC is critical. The NOC is not a cloud or encumbrance on property but it establishes a point of reference to which all valid claims of lien will relate back.
  2. Assume that when a sub or material provider begins, a Notice to Owner must be sent to the owner listed on the NOC (there are exceptions, but remember the rule, not the exception). Like all other notices and forms, it must follow the statute exactly.
  3. If the NTO has been sent properly, a Claim of Lien can be filed within 90 days from the last day the contractor or sub does his work. It must be filed with the courthouse and served on the owner.
  4. The Claim of Lien must be foreclosed within one year of the date it’s filed (except that there are many ways to shorten the life of a Claim of Lien).
  5. A Claim of Lien will affect the title for any future title transaction. For this purpose, a “title transaction” is a conveyance of a property, or a mortgage.
  6. The perceptive reader will see that if an owner of property has paid in full for work done at the time of completion, and if within 90 days of that date a subcontractor or materialman files a lien, the owner is instantly on a collision course with someone who has not been paid. If that lien is successfully foreclosed, the owner will have paid twice for work done.
  7. On the other hand, if the subcontractor neglects to file his Notice to Owner or to serve a Claim of Lien or within 90 days, or files incorrectly or with the wrong form, that builder may not be paid at all.

This article is only the bare bones of a construction lien, and not all of the bones. There are many other forms, many other terms, and other time limits, and each one has exact requirements. Again, don’t walk in this jungle unprepared. This is not like some contest in which everyone can be a winner. Very likely, someone will pay twice, and often someone won’t get paid at all. Those people are not likely to resolve their differences as friends.

When construction liens are litigated the legal fees and costs often exceed the amount of the claim. For that reason, whether you are a contractor, subcontractor, materialman, or owner, the only way you should get in this arena is to get it right.