March/April 2013

MECHANIC'S LIEN RUNDOWN

Our office frequently talks about Mechanic's Liens and the reason a Mechanic's Lien is so important in the construction industry. A Mechanic's Lien is a document that, when recorded, gives contractors, engineers, material suppliers, designers, etc., a lien on the property that the work was done on for which compensation has not been received. It puts a cloud on title to the property until the contractor is paid, giving the mechanic the right to foreclose on the property by filing a lawsuit. However, there are very specific steps leading up to the enforcement of a Mechanic's Lien. Please note that some these laws changed in 2012 and we figured that a quick rundown may be necessary.

Unless you have a direct contract with the owner of the property, a properly completed Preliminary Notice must be properly prepared and served within 20-days of first furnishing labor and/or materials to the job in order to insure that your Mechanic's Lien is enforceable. If a Preliminary Notice is not filled out properly and properly served, it can mean that all of part of your future Mechanic's Lien is void. If there is a construction lender on the project you are working on, you must prepare and serve the Preliminary Notice even if your contract is with the owner.

Once the job is substantially complete or labor ceases for 60-continuous days, then you have 90-calendar days within which to record your Mechanic's Lien. If a valid Notice of Cessation or Completion has been recorded, then the 90-day time frame is shortened to 60-days if you are the direct contractor and 30-days if you are a subcontractor or material supplier. If the Mechanic's Lien is not recorded within these specified time periods, then the Lien is void.

In order for a Mechanic's Lien to comply with the law it must contain the following:

• The amount demanded - Keep in mind that this is supposed to be a reasonable value of the services or materials naturally incorporated into the project. If the Mechanic's Lien amount is overstated, the courts can invalidate the entire lien and therefore the suit to foreclose on the property.
• The name of the owner or reputed owner - In this instance, it is better to have too many names listed, even if they are not correct rather than miss out on the one name that is correct. This also includes the use of various surnames or aka's.
• A general statement of labor, services, equipment, etc., that is furnished on the project
• A description of property that is sufficient for identification in order to bind the property
• Claimants signature and verification
• Proof of service affidavit
• A "Notice of Mechanics Lien"

Once the Mechanic's Lien is recorded, the contractor has 90-calendar days within which to file a lawsuit to foreclose on the property. The courts are very strict with their interpretation of the Mechanic's Lien statutes so if the suit to foreclose on the lien is not filed within the 90-day time frame, the Mechanic's Lien claim will be deemed invalid. Keep in mind, that the lawsuit to foreclose on a Mechanic's Lien is not prepared overnight. Make sure to give your construction attorney enough time to prepare the lawsuit and have it filed with the court.

If you need more than 90-days within which to file the lien foreclosure action, you can give credit to the owner by utilizing a Notice of Extension of Credit. This document must be signed and notarized by both the owner and mechanic. It should be recorded prior to the expiration of the 90-days. There are now some exceptions where the extension notice can be recorded after the 90-days. The purpose of this extension is to extend the time within which the foreclosure action can be filed with the courts. This procedure is handy when you and the owner are trying to resolve the dispute.

Once the foreclosure action is filed with the courts, a Notice of Lis Pendens must be filed with the court and recorded with the county recorder within 20-days of filing the lawsuit. This notice secures the claim of the contractor on the property. Then the lawsuit process really kicks in. Hopefully, you will be lucky enough to settle the matter before it even gets to this point.

Now that you have reviewed this quick rundown, we hope that you see how detailed the process of perfecting your Mechanic's Lien rights can be. There are many requirements in place as well as timing as to when certain things should be done or filed. It is very important to seek the aid and advice of a competent construction attorney for help with the Mechanic's Lien process. This should be done even before you realize you need to record a Mechanic's Lien.