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.

Why You Should Lien First (and Ask Questions Later) in Virginia

Christopher Hill is a LEED AP and construction lawyer in Richmond, VA.  He is a member of Virginia’s Legal Elite in Construction Law and authors the Construction Law Musings blog.  You can also follow him on Twitter at  @constructionlaw.

First of all, thanks to Scott for allowing me the forum to guest post here at the Construction Law Monitor.  When I was thinking of a topic, I realized that mechanic’s liens in Virginia are extremely powerful.  Their power is particularly helpful when, like now, the construction economy is not exactly booming.

Why do I say that a lien in Virginia is so powerful?  Two reasons, 1. the lien (with one exception) takes priority over even a first mortgage or deed of trust, and 2. a lien in Virginia (assuming it is filed correctly) is perfected and enforceable as soon as it is recorded.  This one two punch creates a situation in which a construction subcontractor can suddenly move from a position of vulnerability to one of strength.  Once the lien hits the courthouse, and notice goes to the Owner, things generally start to happen:

1.  The bank gets nervous; 2.  The Owner begins to fret and squeeze the General Contractor to see why the sub has not been paid; 3.  The subcontractor’s construction attorney hopefully gets a call; and, importantly 4.  Money starts to flow (or at the very least the General Contractor is forced to file a bond with the Court to assure that the sub will be paid).  In short, until you, a construction professional who is owed money, are presented with the “fish or cut bait” scenario of having to file a suit to enforce the lien or stick with a breach of contract action, you are in the driver’s seat.  Of course, this assumes that you and your attorney have properly met the picky requirements of a Virginia mechanic’s lien.

The second point is equally important.  The fact that a commercial subcontractor or supplier does not need to perform any additional steps, aside from recording the lien, in order to perfect it means that your lien not only survives bankruptcy if filed prior to the Owner’s bankruptcy filing, it means it can be a secured lien even after bankruptcy of the Owner.  All that the bankruptcy does regarding your lien is to stop the clock on the 6 month filing deadline for the length of the stay.  I have seen more than one instance where having this secured position in a bankruptcy is the difference between pennies on the dollar and almost full recovery out of the bankruptcy.

In short, don’t wait to file your lien in hopes that you will get paid.  While I always prefer that construction professionals work things out short of litigation and enjoy representing construction pros in and around Richmond because they generally do so, now is not the time to let your lien rights lapse.  Any General Contractor or Owner that balks at your exercising your lien rights is not likely to pay in any event.  Those Owners and General Contractors that see your actions as “just business” are more likely to be folks for whom you will want to work in the future.

In sum, a mechanic’s lien, filed in a timely and proper fashion, can be, and generally is, a cost effective and powerful collection tool for Virginia contractors.  Construction professionals in Virginia should not see such liens as a last resort, but as one of the arrows in their collection quiver to be used when an Owner or General Contractor (with or without fault) fails to pay them in a timely fashion.