Enforcing a Mechanic’s Lien
What are the options when a subcontractor or supplier has performed work but has not gotten paid?
One option is to record and file a mechanic’s lien, which is a security interest in the title to project’s property for the benefit of those who have supplied labor or materials that improve the property. Mechanic’s liens help subcontractors and suppliers because it acts as an additional option to help enforce an owner’s payment obligation.
When an owner’s property is liened, the owner has an incentive to remove the lien because it clouds the title, and filing a mechanic’s lien often induces the owner to pay the subcontractor to remove the lien. If not, the subcontractor can initiate judicial proceedings to have the court sell the property and pay the contractor the amounts owed from the proceeds of the sale.
This article reviews the general steps that most states require to enforce a mechanic’s lien.
Serve a preliminary notice when work starts on the project
State law usually requires a subcontractor to serve a preliminary notice on the general contractor, the owner and any construction lenders within 20 days of starting work on the project. Notices usually confirm that the subcontractor or supplier is on the project and is reserving the right to lien the project if not paid in full for work on the project.
Send a notice of intent to lien if not paid
Some jurisdictions require that subcontractors send the owner, general contractor and any construction lenders a notice of intent to lien. This document usually takes a similar form as a lien, which is usually a short form that requests basic information about the project (the name of the project, its address, its owner and general contractor, etc.) and information specific to the claim (name, the type of work performed, the amount of the contract, the amount that remains unpaid, etc). The notice of intent to lien puts the owner, general contractor and any construction lenders on notice that the subcontractor or supplier has not been paid and intends to file a lien on the project property. The notice functions as a quasi-demand letter and gives the owner an opportunity to ensure that the subcontractor or supplier is paid before the property is encumbered.
Prepare, record and serve the mechanic’s lien
The mechanic’s lien usually takes the same form as the notice of intent to lien as described above. The mechanic’s lien must be recorded with the local jurisdiction’s recorder’s office. The purpose of the lien is to encumber the land and to put other potential lien holders and/or purchasers on notice of the lien so they each understand the land is encumbered. Timing is important because most jurisdictions require a mechanic’s lien to be recorded and served within 90 days after last providing labor or materials to the project. After recording the lien, a copy of the recorded lien is served on the owner, general contractor and any construction lenders. This is usually done by certified mail, return receipt requested and/or personal service.
Check for notices from the owner
Be on the lookout for any notices from the owners. Under some state statutes, if an owner sends a notice of completion, a notice of occupancy, a notice of cessation or other similar document, it shortens the time a subcontractor or supplier has to file a mechanic’s lien (usually from 90 days to about 30 days).
File a complaint for foreclosure and a lis pendens
A mechanic’s lien is enforced through a judicial foreclosure sale. Subcontractors and suppliers usually have 90 days to initiate the lawsuit after recording a mechanic’s lien. After initiating the action, file a lis pendens (a notice that an action on the lien has been initiated) with the jurisdiction’s recorder’s office. If the court determines that the statutory requisites are met, it can force a sale of the property and give the subcontractor or supplier the proceeds of the sale.