INDUSTRY INSIGHTS | WINTER 2010/2011 EFFECTLien Laws Can Differ Greatly by State
by Janet L. KleinIt happens more often than you think: a contractor doesn’t get paid for the work that has been performed. The contractor may be stuck if he is not prepared and informed of his rights. A mechanic’s lien could save him, but it’s important to understand that most state court systems regard it as a privilege and not a right. A lien acts like a mortgage or deed of trust; it is a recorded and/or filed claim against the property constructed and prevents an owner from selling, financing, or refinancing the property until the lien is settled.
You receive the benefits of a mechanic’s lien only if you adhere to the requirements established by law. However, no two states have the same lien laws. If you miss a deadline, even by one day, your claim rights are gone. Therefore, it is important for a contractor (or a supplier to a contractor) who operates in multiple states to know and understand the differences.
Below is a summary of some of the basic lien laws from a sample of neighboring states to demonstrate the differences a contractor might encounter from job to job. It shows requirements for both prime and subcontractors (material suppliers are included as subcontractors) in each of the three stages of the lien process:
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Illinois |
Minnesota |
Missouri |
| Pre-Lien |
There is no pre-lien required in Illinois, other than for services and materials rendered to a single-family or owner-occupied residence. A pre-lien notice must be served within 60 days of first supplying the materials or services. |
A pre-lien notice is required within 10 days of completing the work for a prime contractor or 45 days for a subcontractor. Pre-lien notices are only needed for the construction of a building 5,000 square feet or less. |
Disclosure notice must be served on the owner prior to first payment for a prime contractor, and within 10 days prior to filing a lien statement for a subcontractor. |
| Claim of Lien |
Prime contractor:
A verified claim for a mechanics lien must be recorded within four months after completion of the work.
Subcontractor:
A written notice of a claim must be served to the owner or owner’s agent within 90 days and recorded within four months of completing the work.
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Prime and subcontractor:
A mechanic’s lien statement needs to be filed and served to the owner and owner’s agent within 120 days of last furnishing labor or material. |
Prime and subcontractor:
The lien statement must be filed within six months after the indebtedness secured by the lien became due and payable to the contractor. |
| Foreclose/Enforce |
Action to foreclose (for a prime contractor) or an action to enforce (for a subcontractor) a mechanic’s lien must be filed within two years of completing the work for which the lien was originally recorded, or within 30 days after the owner makes a demand against the lien claimant that suit be filed. |
Action to foreclose must be filed within one year of last providing labor, skill, or material for improvement. |
Suit to foreclose a mechanic’s lien must be initiated within six months of filing the lien statement. |
There are distinct differences among even the basic guidelines, but state laws for lien rights can also differ based on the type of construction done—residential versus nonresidential. In addition, regulations are constantly changing. A prime example is a lien law overhaul for Missouri residential property that went into effect August 28, 2010.
This new law applies to any residential property transferred on or after November 1, 2010, and includes four basic components:
- Lien rights will be lost if the lien claimant does not record a “notice of rights” with the recorder of deeds at least five days before the property is sold (i.e., title is transferred).
- Seven items must be included with the lien, including recorded notice of rights, name and address of the lien claimant’s upstream contractor, and all invoices for work done on the property.
- There are new rules interpreting the effectiveness of lien waiver forms. A lien waiver shall not be deemed to release the lien rights in exchange for payments less than the amount claimed due at that time, unless the lien waiver is a final unconditional waiver.
- An owner is permitted to provide substitute collateral in lieu of the lien as a means of clearing title.
Your best bet is to check the lien laws of the state where you are working as you start a job. Visit http://www.nationallienlaw.com or consult your legal counsel for details. There is no forgiveness in the laws, so if you do not stay on top of them, you could lose out on the benefits.