Filing Mistake Invalidates $12.4 Million Mechanics Lien

Mechanic lien laws are highly technical, and they frequently change in unpredictable ways (see recent controversial example from Washington). We’ve expressed the sentiment a hundred times on this mechanics lien blog – it’s very easy to make a common lien mistake.

Unfortunately for JE Dunn Construction Co., it seems someone may have really dropped the ball filing its $12.4 Million mechanics lien. The developer of a stalled West Edge project in Kansas City now claims the construction company’s mega-lien has a mistake that invalidates it.

When it comes to filing a mechanics lien, sometimes you only get one chance to get it right. Depending on the merit of the developer’s claim, JE Dunn Construction Co. may have gotten a very frustrating and expensive lesson about the technical nature of mechanics liens.

From the press, it looks like the lien would have converted the debt from an unsecured claim into a secured claim in the bankruptcy proceedings pending on the West Edge project. Without the lien, the claim falls to an unsecured one, making collection a lot less likely. That makes this lien mistake one of the country’s most expensive.

What Could Have Gone Wrong?

What could have went wrong with the mechanics lien, you ask? What kind of mistake could invalidate such a big claim?

Funny enough, the biggest claims in the world can be invalidated by just the simplest and most technical oversight. Here are examples of common filing errors that could have cost JE Dunn Construction Co. its secured claim:

• Poorly Identifying the Property: Most states require the use of a legal property description, and others require specific descriptions of the property. In every state, the requirement is technical, and a lien can be invalidated because of an inadequate description. (See article about describing properties on mechanic liens).
• Signing Mistakes: Mechanic liens must be signed in a particular way. Some states require they be notarized, some states require a verification with specific and statutory language. The smallest waiver from these requirements can result in the mechanics lien being invalidated. (See article on Washington lien invalidated because of verification error)
• Not Sending Notice: Some states require notice when you begin work. Some states require notice immediately before filing a mechanics lien. Some states require notice immediately after filing a lien. Failing to deliver this notice, can forfeit your mechanic lien rights. (See blog posts about preliminary and other notices)

Who is Filing Your Mechanics Lien?

Let us be the first to tell you that if you are about to file a $12.4 Million mechanics lien, you have no business filing it without the counsel of a qualified and experienced construction attorney. That is big money, and it’s certainly worth spending a few thousand dollars on counseling.

However, there are occasions when it doesn’t make financial or practical sense to hire an attorney to file a mechanic’s lien. That’s when we really shine. And some law firms - like this one in Georgia – have even recommended using a lien service to file a construction lien in the right circumstances.

For this, check out zlien, a lien filing service that was founded by Scott Wolfe Jr., principal attorney for Wolfe Law Group.

This article was originally posted on zliens topic-specific Construction Lien Blog.

What Happens After You File A Mechanics Lien

So, you fulfilled all of your notice requirements and you filed your mechanics lien on time. The other party still hasn’t made payment, and you begin to wonder…now what?

Why Mechanics Liens Work

First, before discussing what happens after the lien is filed, let me first address why mechanics liens are effective ways to collect on non-paying projects.

This is an important point when discussing what happens after a mechanics lien is filed because it touches on why mechanics liens sometimes prompt payment without any further action after the filing itself.

Mechanics Liens are effective for the following reasons:

- Without a mechanics lien, you can only sue the party you contracted with. With a lien, you can sue the property owner, those up the contracting chain from you, and the surety bonding the project.

- A mechanics lien can prevent a property from being sold, transferred or refinanced

- Without a mechanics lien, you have no security when you file suit on your breach of contract claim. With a lien, your claim has the property has security.

This is a perfect storm of aggravation to the project and the parties working on the project, that frequently results in getting you paid without any action beyond filing the lien. See how it worked on the MGM Project in Vegas here.

What Happens Next?

But what happens if your mechanics lien does not produce immediate payment? See article on this topic here.

Most states require the lien be “enforced” or “foreclosed.” This typically means that you bring a lawsuit against the person you contracted with and/or the other relevant parties (property owner, prime contractor, surety, etc.). In most circumstances, the lien stays on the books while your action is pending, and if you win…you have the security of the property to ensure you get paid.

It is very important to recognize that you only have so long to enforce or foreclose on your lien. If you fail to do this within the specified time frame…your mechanics lien will expire completly.

The time you have to enforce or foreclose on a mechanics lien varies depending on the state where the project is located. We have Construction Lien Law Summaries, and specifically the time period to enforce mechanics liens from each state, available on our State-By-State Lien Law Summaries and Forms Page.

And don’t forget about Zlien’s Lien Pilot, which calculates your project’s deadlines for you (including your deadline to foreclose / enforce a mechanics lien).

What Happens When My Lien Expires?

Well, this is a pretty sensitive subject. You can always bring your lawsuit against the party in your contract (if you are within the statute of limitations for your state).

But with respect to the mechanic lien’s viability, Kelly Davis has a great article published on her blog on this issue: Didn’t Foreclose on your Mechanics Lien? What Should You Do Now?

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

A Catch-22: Pay When Paid Clauses Do Not Extend the Lien Period

If you search “Pay When Paid Clauses” in Google, you’re going to get a lot of results that say a lot different things. This contractual provision – used in almost every general / sub construction contract – is perhaps one of the most confusing or misunderstood provisions out there.

We recently blogged about the dangers of using one contract in multiple states. The post used the “pay when paid” provision as an example of why multi-state contracts are problematic.

The provision itself seems pretty clear: one party will get paid when the other party gets paid. It isn’t. Interpretation of this provision varies by state, with some states striking down the provision entirely as against “public policy” and other states distinguishing between “pay when paid” provisions and “pay if paid” provisions. The only way to protect your company against this tricky provision is to consult with an attorney about how these provisions are treated in your jurisdiction.

While interpretation of “pay when paid” provisions differ from state-to-state, there does appear to be one constant about this provision across the country: It doesn’t extend your lien period.

Most states require liens be filed within a certain period after you last worked on the project, or after the project is complete. The fact that you or your company is waiting for payment because the prime or an upper-tiered sub hasn’t been paid is completely irrelevant. The lien period still starts when it starts, and ends when it ends.

As you might imagine, this presents a bit of a Catch-22.

On the one hand, you must file a lien to preserve your right to lien. On the other hand, filing a lien may complicate the payment problems for the prime or upper tier sub (and thus your payment problem), and may cause animosity when negotiations are otherwise calm.

Unfortunately, there is no easy fix for this complication. Each situation should be examined individually, and sometimes, a simple joint check agreement may be the solution. It’s just important to remember that good faith negotiations and waiting for payment under a contractual obligation to do so will not likely extend the lien period, and too much talk could result in the loss of lien rights.

Here are some great resources and articles on Pay When Paid provisions:

- Fourth Circuit Concludes Pay When Paid Clause is Unambiguous and Enforceable

- Pay When Paid or Pay If Paid Provisions

- Is Your Pay When Paid Clause Worthless?

- Contingent Payment Clauses, Use With Caution

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Liens Make Your Payment Problem the Entire Project’s Biggest Problem

When you don’t get paid on a construction project, that is a big problem for you and your company. But, is it a big problem for the entire construction project? Not likely.

So, how do you make your problem an important problem to the other players working on a construction job? With a mechanic’s lien, of course.

The Wall Street Journal recently reported on a mega-project in Las Vegas (the $8.5 billion City Center), and a contractor dispute that is affecting the project’s finances. There was something really interesting about this report for those of us who follow mechanic lien law and news – and that’s this quote from City Center President Bobby Baldwin, referring to over $500 million in liens filed against the project:

Obviously everybody is concerned about the liens. They have to be explained in great detail to our residential buyers.

To resolve the concern about the liens, the property owner is slowly paying off all of the subcontractor and supplier claims while they proceed with their dispute against the prime contractor. Without those liens, those subs and suppliers would have to wait months or years for the main dispute to resolve, and payment to trickle down from the owner to them. Depending on the size of the contract, that’s something that could cripple their business.

The Wall Street Journal article and construction dispute at the City Center was the subject of a blog post on the Construction Law Monitor, which that blog called a “Large-Scale Example of an Everyday Construction Dispute.” And that summary is perfectly true when it comes down to mechanics liens.

Regardless of how large or how small the project, mechanics liens creates a problem for the project. If you’re not paid on a construction project, the best way to make your problem the construction project’s problem, is to file a mechanics lien.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Great Avvo Legal Guide Available With Information on Florida Lien Laws

Florida attorney Neal Ian Sklar just this week published a really informative Legal Guide about Florida Construction Liens over at the lawyer rating website, Avvo.com.

The guide starts out by identifying the “dual purpose” of Florida’s construction lien statutes. While the author is speaking about Florida law only, the “dual purpose” breakdown is really applicable across the country.

What is this dual purpose?

Well, on the one hand, lien statutes are crafted to protect contractors, subcontractors, suppliers and design professional’s right to get paid for work put into a project. The law, in other words, doesn’t want a property owner to benefit from the improvements to property without paying the folks who put the time and materials therein.

You may be thinking “of course.”

The other purpose is a bit more hidden in the statutes. That purpose is to protect property owners from having their property improperly or unreasonably encumbered.

To balance these two purposes, lien laws across the country can sometimes feel schizophrenic.

Neal’s legal guide over on Avvo discusses the Florida lien laws in this context, and he does a good job of explaining how the two purposes are served by the Florida statutes.

While lien laws vary from state-to-state, understanding the “dual purposes” of these statutes provides contractors, subcontractors, suppliers and others a big picture understanding of how these statutes work…which, although each state’s laws are different, gives them a good grasp on the general rules they’ll need to follow to successfully use the laws.

And when a state’s specific requirements are needed…consult a great legal guide like Neal’s.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Give Notice That You’re Working!

In many states, if the property owner doesn’t know your company is working on a project, you may not have the right to lien. And since it’s impossible for the law to know when a property owner does or does know a fact, laws around the country require contractors of various tiers to “notify” the property owner in writing that they have begun work.

This is called a preliminary notice or notice to owner (NTO). Simply put, it is a written document usually sent certified mail return receipt requested that formally notifies the proeprty owner and any higher tiered contractors that your company is on the project and that you expect to get paid.

In the event you’re unpaid, and you gave the required notice, the property owner and/or upper tiered contractors may be liable to pay you directly (after you file a lien).

If you don’t deliver the required notice, you’re largely out of luck, and you can only pursue payment from the person you directly contracted with.

That’s a very, very general overview of how preliminary notices work across the country. It gets sticky when you look into the details of each state, however, as every state has different notice requirements and deadlines.

Express Lien has great free resources for contractors, subcontractors, equipment lessors and suppliers looking for some clarity on whether notices are required and when they must be delivered. Check out their free “Lien Law Punchlists,” organized by states. They also have a “National State-By-State Lien Law and Deadline” publication.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Organization: A Secret To Managing Legal Messes…Start 2010 on the Right Foot

Happy New Year.

Did you make it through 2009 alive?  It certainly was a tough year.  Perhaps your legal bills were more than ever before, or maybe you got by without spending much or anything at all on counsel.   In either case, let’s make a resolution to avoid expensive legal bills in 2010.

How do you do it?

Ask an attorney how to avoid legal messes and expensive litigation, and they’ll likely start discussing legal precedent, contractual provisions and other technicalities.   Sure, all of that stuff is important when you’re knee deep in litigation.  By that point, however, you’ll already have an attorney to handle those issues.

What about before you’re knee deep in litigation; how do you avoid legal messes?

The most valuable piece of advice I give clients who ask me how to avoid legal fights and messes is to be organized.

Organization is your best friend when entering a litigation scenario.   It proves your case when you’re right, and it paints a clear picture of your risk and exposure when your wrong or possibly wrong.   And insofar as your contractual and legal duties are concerned, if you’re organized and know what they are, you’ll have a much better chance of fulfilling them.

Now, you’re quite lucky that it’s now 2010.   That’s because the World Wide Web has been improving for over 20 years now, and it’s got a million ways to help you organize your construction business (large or small) in the new year.

Here are a few of our favorite web applications out there that can help you stay organized, and avoid legal bills and messes.

Keep Your Files Organized

Construction projects can have tons of paper exchanged.   Contract documents, job specs, change orders, correspondence…the list can go on.   And, to top it off, all these documents are being exchanged between you and your employees, and your subcontractors, suppliers, their subs and suppliers, the property owner…the list can go on.

How do you manage all that collaboration, and all that paper?

SugarSync:  This works with PCs, Macs, on iPhones and Blackberrys, on just about anything else…and it’s easy as pie.   Add a file to a folder on your computer, and it instantly gets added to that folder on everyone else’s computers.  You can share files or folders with other companies, allowing them to just see the docs or edit / trash it.

The possibilities are endless, and the cost is low.  This program can single-handely change the way you exchange documents on your construction project.

Box.Net:  Like Sugar Sync, this is another document management system to help you organize documents to a construction project and collaborate with others on the documents.  Insofar as features and collaboration are concerned, Box.net gets the edge.  You can sign documents electronically, send documents via fax, edit docs, send docs via postal mail, and more…all within the box.net interface.   Box.net is entirely web-based, however, meaning you can’t just drag and drop a file into a folder on your PC and let it do its magic.  On the ease of use, SugarSync gets the edge.

Notice and Lien Deadline Management

It doesn’t matter if you just work in one state, or if you work in every state.  Notice and lien requirements are confusing, and the effort required to comply with these requirements can feel constant.   How do you keep up?

ExpressLien:  Enter Express Lien.   This company provides two different sets of services.

First, it helps you manage your lien and notice requirements and deadlines.   You put in your project data, and it calculates your requirements and deadlines and displays it to you all on an easy to read online interface.    How much?  It’s free.

Second, if you want, you can order your notice and lien documents directly through Express Lien.   They will take your project data, create the documents, file/send them, and keep track of all the delivery and filing data in your online profile.   Document filing is done for a low flat fee.

Lien on Property or Lien on Funds? It's Two Different Collection Tools

Liens are one of the most powerful collection tools available to workers in the construction industry. Mechanics Liens are inexpensive and hard-hitting, and perhaps one of the most effective ways to collect on non-paying projects.

A properly filed construction lien can affect a property’s title, entangles multiple parties to your dispute, and helps get you paid.  Suppliers, prime/sub/sub-sub contractors and laborers all have the rights to lien a property they performed work on.

Bradley Coxe  Hodges & Coxe, PC law firm wrote some basic information within JD Supra explaining the two broad types of a mechanics’ lien-  the property or funds lien.

Property liens are the most popular and widely used in each state.  The homeowner is responsible for getting the worker paid for his completed job.  This, when filed and recorded correctly within the respective county or parish places a hold on the owner’s land preventing them from selling or turning over until the matter is determined by the courts.

The second type of lien is the lien on funds; which is when the payor, not the owner, is responsible to pay for the work.  Whomever performed work on the property that was not contracted directly with the owner can send a notice to the owner letting them know 1- they have not been paid  and 2- they should not pay whomever is in charge of getting the money (in most cases, this is the prime or general contractor)  The funds that are owed to the general or prime contractor is what has been liened.  If the general contractor has been paid after a notice was supplied to the owner, a sub-contractor can then lien the property.

This post originally appeared on the Construction Lien Blog.

How To Cancel a Washington Lien

Every state has strict regulations about how a construction lien may be filed. Oftentimes, however, the cancellation of a construction lien may be more difficult than its filing.

In most states, a “lien release” or “certificate of cancellation” must be filed with the recorder where the lien was filed, and these releases are typically required to identify the property, identify the recording information on the lien (i.e. book #, page #, etc.), and be notarized.

This requirement to provide the recording information and book number highlights the importance of retaining a copy of the original lien document. Furthermore, in some states, the actual original lien document is required to cancel the inscription (In Georgia, the county recorder requires an original copy of the filed lien to grant a cancellation).

The process in Washington state is rather simple. The “lien release” direction is provided by state, in R.C.W. § 60.04.071:

Upon payment and acceptance of the amount due to the lien claimant and upon demand of the owner or the person making payment, the lien claimant shall immediately prepare and execute a release of all lien rights for which payment has been made, and deliver the release to the person making payment. In any suit to compel deliverance of the release thereafter in which the court determines the delay was unjustified, the court shall, in addition to ordering the deliverance of the release, award the costs of the action including reasonable attorneys’ fees and any damages.

The “lien release” document is a simple form that essentially provides three pieces of information:

• The recorded lien’s identifying information;
• A statement that the lien is requested to be released; and
• The statement must be notarized.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.