Chapter 6Liens

Opening Questions• Why is a lien on real property so

powerful? • What are your experiences with liens?• What rights to lien holders have?• Is this body of law good for society?

Types of Liens

Statutory lien (example: Mechanic’s Lien) Equitable lien (mortgage – borrowed money used to buy the

property) Contractual lien Voluntary vs. involuntary lien Mechanic’s or materials lien Judicial lien Tax lien Artisan’s lien

Focus for this class

What is a Mechanic’s Lien

The right of one who renders services or supplies materials in connection with the improvement of real property to seek a judicial sale of the realty to satisfy unpaid claims.

What is included in “rendering services” or “improvement” to real property? What about a delivery person that delivers supplies to a property or a guard that is hired to watch over those supplies? Environmental clean up?

Concept of “Permanency” This a concept that mechanic’s liens should cover permanent work and not temporary work. Are mowing lawns permanent? What about adding benches?

Parties to a Lien

Lienor – one who attaches a lien Lienee – party whose property is subject to

the lien

RTBH Inc (McAndrews). v. Simon Property Group (#X)849 NE2d 764 (Ind App 2006)Mechanics Lien: Improvements must be under the authority of owner

20 Year Lease. Dick’s Sporting Goods entered into a lease with Simon to build a store on Simon’s land.

Dick’s Building the Store. Dick’s designed and is paying for the building.

Landlord Review. Simon reviewed the building plans and noted “Landlord’s review of contract documents is for design intent and criteria compliance only.” Simon also agreed to complete construction if Dick’s did not.

Landlord Aware. Simon was certainly aware that a building was being built.

Landord Will Get Building. In 20 to 50 years. Dick’s hired SC Nestel, Inc. to build the building. Nestel hired McAndrews to do the windows and

glass. Nestel never paid McAndrews and filed a claim

against McAndrews for damages. Simon had no interaction with McAndrews and little

with the general contractor. McAndrews filed a lien against Simon. Is the lien valid?

5

SC Nestel

SimonDick’sOwns the landlease

General Contractor

BuidlingContract

McAndrewsSub-Contractor

Contract for Windows

Approval Required

Buchanan v. Overley, p. 119 (#9)178 P3d 53 (Kan App 2008)

Single-Family Home Contract. Overleys hired Buchanan to build a single-family home on land they owned.

Dispute over Quality. Overleys did not pay based on the qualify of the work.

Builder Files Lien. Buchanan filed a lien. Lien Failed to Include Builder’s Address. Is the lien invalid

for failing to have an address. Address Listed 21 Times in Attachments. The correct

address was listed 21 times in attachments to the lien. Strict compliance. Why require strict compliance?

6

Lien Basics: Content

1. Amount due under the contract (for labor, materials, and so on)

2. Amount of time within which work is to be completed

3. Amount of time permitted for payments and any schedule of payments

4. Description of the real property involved

5. Description of the work to be completed

6. Signature of the parties. (If the property is community property or held in tenancy by the entirety, then both spouses’ signatures are required.)

7. If the property being repaired or improved is consumer property, Regulation Z (12 C.F.R. § 226) requires the following disclosure to be made:

The buyer may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction.

8. Provisions for breach of the agreement (i.e., nonpayment or nonperformance), such as withholding payment or obtaining another contractor.

Ontiveros v. Sanchez (#10)3 p3d 69 (NMCA 2000)Unjust Enrichment

Two couples purchased homes from a general contractor. The couples paid a large part of the purchase price to the general

contractor but the general did not pay the subs. The general contractor went out of business leaving the homes only

partially completed. The couples completed the work at extra expense to themselves;

however, the final homes were worth more than the cost to build them. Should the couples have to pay the subs?

8

Owner Contract Price

Paid Contractor

Actual Cost

Value

Sanchez $63,000 $26,000 $125,456 $144,456

Parker $73,000 $45,000 $120,851 $140,851

MN Law: Recovery limited to the extent of amount unpaid to the general contractor.

Basics of Mechanic’s Lien Rights

Who can claim liens?– Original or principal contractors– Subcontractors– Persons supplying labor– Persons supplying materials

Types of claims– Written contracts– Implied contracts (some states)

Priority Filing• Lien dates to when work

begins – not date filed• Permanent lender must be

sure all liens are removed before lending.

• Construction lender must make sure it’s lien/mortgage is first by not allowing work until it’s mortgage is filed.

Who Is Subject to Liens?

Property owners Landlords with consent (notice of nonresponsibility

posted at construction site might relieve noncontracting owner of liens)– Consent statutes (exrpress or implied agreement.)– Contract statutes (signed contract)

Landlords who participate with tenants in improvement of the property

Consider 6.2 – Failure to Prove Lien Notice Sent• Notice sent certified mail• Lien holder unable to produce evidence of receipt.

No liens against U.S. Government property. Why?

Tarlton v. Miller’s of Claflin (#x)227 P3rd 23 (Kan. App. 2010)Subcontrator versus Direct Contractor

Single-Family Home Contract. Tarltons hired Gisick to build home.

Gisick Dies. Builder died before finishing home and the estate was not able to pay all the sub-contractors.

Subs-File Liens. Subs Failed to Give Notice to Homeowner. Subs Claim Homeowner Consented by Being Direct

Relationship. Evidence of Relationship/or lack thereof

– Tarltons worked with Gisick– Goods sent to Gisick – No contracts with subs and Tarltons

11

MN Law

12

• Consent State. Lien will attach to the lessor’s interest if the lessee improves the property and the lessor has actual knowledge of the improvement.

• License Required. Contractor must be licensed, if job requires a license, to get a lien.• Contractor Pre-Lien Notice. Contractor must give owner written notice of intent to file

a lien. If there is a contract it needs to be in the contract. Otherwise, the notice must be delivered personally or by certified mail within 10 days of the agreement.

• Subcontractor Notice. Also required, but within 45 days of first furnishing labor, skill or materials. “If we are not paid by your contractor, we can file a claim against your property for the price of our services.”

• Exceptions. No pre-lien notice required if no subs (or if owner is working directly with the subs). Larger multi-unit residential and commercial exceptions.

• Allowed to Pay Subs Directly.• No Lien Against Government.• Mechanic’s Lien Statements. The lien ceases 120 days after final contribution,

unless the lien is filed and a copy I served personally or by certified mail on the owner. • Foreclosure. Must commence action within one year of last contribution. • Attaches Last Day Labor Supplied. This is when a lien attaches.

MN Law – Lien Requirements

13

SUBD. 2. STATEMENT BY LIEN CLAIMANT; REQUIREMENTS.Such statement shall be made by or at the instance of the lien claimant, be verified by the oath of some person shown by such verification to have knowledge of the facts stated, and shall set forth:• Intent to Claim a Lien. a notice of intention to claim and hold a lien, and the amount thereof;• Amount/That Due from Work/Material. that such amount is due and owing to the claimant for labor

performed, or for skill, material, or machinery furnished, and for what improvement the same was done or supplied;

• Name of Claimant and Who Work Performed For. the names of the claimant, and of the person for or to whom performed or furnished;

• First/Last Work Dates. the dates when the first and last items of the claimant’s contribution to the improvement were made;

• Legal Description. a description of the premises to be charged, identifying the same with reasonable certainty;

• Owner Name. the name of the owner thereof at the time of making such statement, according to the best information then had;

• Address. the post office address of the claimant. (The failure to insert such post office address shall not invalidate the lien statement);

• Service Acknowledgment. that claimant acknowledges that a copy of the statement must be served personally or by certified mail within the 120-day period provided in this section on the owner, the owner’s authorized agent or the person who entered into the contract with the contractor as provided herein; and

• that notice as required by section 514.011, subdivision 2, if any, was given.

MN Law – Provides Sample Notice

14

MN Homestead Exemption

10.01 HOMESTEAD DEFINED; EXEMPT; EXCEPTION.

The house owned and occupied by a debtor as the debtor's dwelling place, together with the land upon which it is situated to the amount of area and value hereinafter limited and defined, shall constitute the homestead of such debtor and the debtor's family, and be exempt from seizure or sale under legal process on account of any debt not lawfully charged thereon in writing, except such as are incurred for work or materials furnished in the construction, repair, or improvement of such homestead, or for services performed by laborers or servants and as is provided in section 550.175.

15

Lis Pendens Filing.

• Affects title to or right of possession of the property• Was filed for a proper purpose and in good faith and/or• Is likely to be successful at trial.• Burden on person filing to show these elements exist.

16

Priority of Liens End-of-Chapter, Question 4, p. 133

A is a carpenter and has completed the framing of eight homes for G, the general contractor.

Prior to A’s Work:– A = NOV 22– B had leveled and graded the property – AUG 1– C had put in the foundation – SEPT 15– D had staked out the driveways and homes – AUG 15– E had partially installed plumbing – AUG 30

All served preliminary notice A construction mortgage was filed AUG 1 No one has been paid. All have filed liens by DEC 1. Who has priority – the liens or the mortgagor? What is the order of priority among the liens?

17

Priority of Mechanics Liens

Common Law. All liens are treated equally as if all the work began at the start of the project. (MN LAW)

Time of Filing. Some states give priority based on when the lien was filed.

18

Priority of Liens

Financial lender – when is the lender given a higher priority than the supplier or builder?

Question 6, p. 134. Mortgage lien filed after Schalmo Builders had performed soil test and staked out the locations of the buildings. The builder foreclosed and Bank One as the construction mortgage holder claimed priority. Who wins?

19

Consider 6.3, p. 128

New Dentist Office. General Hired Sub for Cabinets.

Favalora, general, hired Pioneer as the sub.

Sub Submitted Bill. Pioneer billed Favalora and Favalora billed owner for that amount. Owner paid Favalora. Favalora did not pay sub.

Sub Filed a Lien. Owner paid off sub and withheld money remaining owing to general contractor.

General Sues. Can the sub contractor work directly with the owner to be paid?

20

Owner – Dentist

General – Favalora

Sub-PioneerPaid sub directly because General did not pay and owner wanted lien removed.

Pro Rata Distribution under Mechanic’s Liens Example from book, p. 129

$15,000 left to be distributed to  Akron, Barkley, and Clark who are owed the following:

Akron = $15,000Barkley = 10,000Clark = 5,000Total liens = $30,000

Akron = 15,000 ÷ 30,000, or 1⁄2Barkley = 10,000 ÷ 30,000, or 1⁄3Clark = 5,000 ÷ 30,000, or 1⁄6

Therefore, the $15,000 would be distributed as follows:

Akron = 1⁄2 of 15,000 = $7,500Barkley = 1⁄3 of 15,000 = $5,000Clark = 1⁄6 of 15,000 = $2,400

Timing of Liens

End-of-Chapter Q 5, p. 134 15 couples purchased homes n the Green Meadows subdivision and they had

all moved in by August 2009. Two days before Christmas the workmen all filed liens dating back to the

beginning of construction or May 2009. Who has what right?

22

Judicial Lien

Attaches to real property when a plaintiff wins a judgment against a land owner.

Lis Pendens = “suit pending” Plaintiff must first file a lawsuit which affects the title or use to specific real estate – it cannot be used for only monetary claims.

23

Tax Lien

Government lien for failure to pay taxes Governments often pass laws giving priority

to tax liens over other liens – even those filed prior to the tax lien.

What do lenders do to help remove this threat?

24

Perfection of a Lien

Varies by state Notice. Notice to the owner is usually required before filing Notice must include items such as: name and address of the lienor, the name of the

person with whom the lienor contracted if not the owner, the labor or material provided, the dates when the work was started and completed, and a description of the property and the owners' interest, plus the amount due.

Filing. A filed lien becomes part of the public record. Termination of a Lien.

– Paid – Bond paid to court pending litigation (this allows the owner to sell clean

property) Subcontractors

– Pennsylvania Rule. An owner needs to pay a subcontractor even if the owner already paid the full contract price to the general contractor.

– New York Rule. A subcontractor’s lien I limited to the amount still owed the general contractor at the time the ien is filed. The owner is not compelled to pay more than the contract price.

25

26

End-of-chapter Q 1, p. 133. • Chagnon Lumber Lien. Chagnon Lumber sold materials

to Stone Mill Construction. • Stone Mill Construction – Sold Home. Stone Mill built

a home and sold it to John and Ann Breiten. Stone Mill gave the Breiten’s an affidavit stating that the home was clear of liens.

• Within Lien Filing Period – Chagnon Filed Lien. • Lawusit. Breiten’s claim no knowledge of lien.

End-of-chapter Q 8, p. 134. • Morris Plumbing = General Contractor. • Spire Communications = Owner. Spire hired Morris to

help build a fiber optic network around Atlanta. • New Agreement. Spire fell behind in payments and

worked out an agreement with Morris. However, Spire did not pay the settlement payments as quickly as Morris wanted and Morris filed a lien.

• Lien Inaccuracies. The amount was wrong and the lien was filed in one county but work was done in several counties.

• Is the Lien Valid?