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Construction Liens: A National Review and
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245
CONSTRUCTION LIENS: A NATIONAL REVIEW AND
TEMPLATE FOR A UNIFORM LIEN ACT
Blake Nelson
†
I. INTRODUCTION AND GENERAL REVIEW .................................245
II. H
ISTORICAL REVIEW ..............................................................246
III. O
BJECT AND CONSTRUCTION ................................................248
IV. E
LIGIBILITY FOR A CONSTRUCTION LIEN ...............................249
V. I
MPROVEMENTS SUBJECT TO CONSTRUCTION LIENS .............252
VI. P
ROPERTY SUBJECT TO CONSTRUCTION LIENS......................253
VII. P
ERFECTING A CONSTRUCTION LIEN .....................................256
VIII. O
WNER REMEDIES OR DEFENSES............................................264
IX. A
CTION FOR FORECLOSURE ...................................................266
X. L
IEN PRIORITIES.....................................................................268
XI. C
ONCLUSION .........................................................................272
I. I
NTRODUCTION AND GENERAL REVIEW
Although laws creating construction liens, also known in many
states as “mechanics’
liens”, originated in the late nineteenth
century, many lawyers and law students are unfamiliar with them.
This article provides a general analysis of the nature and
application of the various construction lien laws in the United
States and sets forth a position on how a uniform national
construction lien law statute could be structured. Highlighting
basic form and function, this review will discuss the origins of the
construction lien, the process and general requirements of
perfecting and enforcing one, the various defenses to enforcement,
and the potential benefits of a uniform construction lien act.
† Partner at Hellmuth & Johnson, PLLC; Chair of Construction Law Group at
Hellmuth & Johnson, PLLC; Certified Real Property Law Specialist by the
Minnesota State Bar Association; and Chief Author and Editor of The Authority on
Construction Law, a quarterly publication. A special acknowledgment to Stephanie
J. Margolis for research contributions made to the writing of this article.
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246 WILLIAM MITCHELL LAW REVIEW [Vol. 34:1
A “mechanic’s lien” is a statutory remedy intended to secure
payment for labor, materials, or machinery furnished in the
improvement of specific real property or structures affixed to real
property on behalf of another person or entity.
1
While many states
use the term “mechanic’s lien,” it is arguably a misnomer since
mechanics generally have nothing to do with a construction
project. As such, this article uses the more descriptive term
“construction lien” interchangeably with the term “mechanic’s
lien.”
While statutes vary by state, th
e construction lien’s basic
purpose is to protect those who furnish labor, materials, or
equipment for the “improvement” of real property.
2
Construction
liens provide the claimant with a non-consensual lien or security
interest in the improved real property.
3
In the event of
nonpayment, a construction lien claimant may compel the sale of
the real property to pay for the labor or materials.
4
Construction
lien remedies supplement any other remedies a claimant may
possess, including breach of contract, quantum meruit, account
stated, or unjust enrichment claims.
5
II. HISTORICAL REVIEW
At common law, possessory liens we
re available to mechanics
and laborers who improved personal—rather than real—property.
6
The laborer maintained a possessory lien in the personal property
improved, which could be sold in the event of non-payment.
7
However, this remedy provided little benefit if the personal
1. DAVID A. SCHMUDDE, A PRACTICAL GUIDE TO MORTGAGES AND LIENS 331
(2004).
2. Id.
3. Id.
4. See, e.g., Elec. Specialties, Inc. v. Siemens Bldg. Techs., Inc., 837 N.E.2d
1052, 1055 (Ind. Ct. App. 2005) (citing I
ND. CODE § 32-28-3-1 (2004)).
5. See, e.g., MD Drilling & Blasting, Inc. v. MLS Constr., L.L.C., 902 A.2d 686,
690 (Conn. Ap
p. Ct. 2006) (holding that mechanic’s lien foreclosure is not “an
exclusive remedy that would prevent the plaintiff from obtaining judgment on the
breach of contract and unjust enrichment claims at the same time it obtains
judgment of strict foreclosure”); Dane Constr., Inc. v. Royal’s Wine & Deli, Inc.,
480 N.W.2d 343, 345–46 (Mich. Ct. App. 1991) (citing M
ICH. COMP. LAWS §
570.1117(5) (1990)) (holding that mechanic’s lien “foreclosure is a cumulative
remedy that may be pursued simultaneously with an action on the contract from
which the lien arose”).
6. S
TEPHEN ANGLEY, EDWARD HORSEY & DAVID ROBERTS, LANDSCAPE
ESTIMATING AND CONTRACT ADMINISTRATION 190 (2002).
7. Id.
2
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property was relinquished without payment. Despite its
shortcomings, the possessory lien upon personal property
remained a protection not afforded to those who improved real
property.
8
A laborer relinquished ownership of any improvements
to real property upon providing them, and a judgment was his only
means of recovering the value of the contribution.
9
The construction lien originated in 1791 during the
development and construction of Washington, D.C.
10
The
commissioners charged with developing the new seat of the
national government wished to encourage and stimulate further
construction.
11
Attendees at a meeting on September 8 of that year
adopted a memorial, which urged Maryland lawmakers to pass a
law securing a lien for laborers and material suppliers constructing
new houses.
12
Thomas Jefferson and James Madison were among
those who endorsed the memorial.
13
On December 19, 1791,
Maryland became the first state to enact a construction lien law.
14
Pennsylvania followed suit with its own legislation in 1803.
15
Over
the next six decades, more than thirty construction lien statutes
were enacted throughout the nation.
16
Originally available only for
new construction of homes within specific city limits, construction
liens have since evolved to become enforceable for nearly any
improvement to any real property.
17
While a number of economic and social forces likely
contributed to the expansion of construction lien legislation, labor
movements were perhaps the most significant.
18
Pro-labor
organizations and political parties involved with the labor
movement were quick to add construction liens to their platforms
in their quest to support the urban working class, furthering the
spread of construction lien legislation throughout the existing
8. Id.
9. Id.
10. H
ENRY W. FARNAM, CHAPTERS IN THE HISTORY OF SOCIAL LEGISLATION IN THE
UNITED STATES TO 1860 153 (1938).
11. Id.
12. Id.
13. Id.
14. Id. at 154.
15. Id.
16. Id.
at 155.
17. Id. at 155–56; L
AWRENCE M. FRIEDMAN, HISTORY OF AMERICAN LAW 178
(1985).
18. F
ARNAM, supra note 10, at 155; FRIEDMAN, supra note 17, at 178.
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states.
19
Interestingly, the motives of these supportive organizations
and parties were not germane to the original philosophy behind
the construction lien.
20
While the laws were pro-labor, construction
lien laws were unique because their initial focus was not the
protection of the urban poor, like that of most pro-labor
legislation.
21
Rather, construction lien laws protected labor in a
more capitalistic sense, by furthering the development of city
infrastructures, while consequently providing a safer form of
collateral in what historian Lawrence Friedman describes as “an age
when cash, hard money, [and] liquid capital was short.”
22
Yet for
supporters of the labor movements, construction liens were the
answer to a prevalent condition whereby contractors used laborers
and materialmen to put up buildings for profit and then refused
them their rightfully earned wages.
23
III. OBJECT AND CONSTRUCTION
Real property law generally provides that an interest arises in
the who
le when the various parts constituting the completed
object—including a person’s labor, skill, or material—become
inextricable.
24
The nature and value of the original object is so
changed that it is unsusceptible to division.
25
Construction lien
laws are based upon this well-established principle: they provide a
vehicle by which the improver may obtain an interest in the whole
to secure payment for the value of his contribution.
26
State courts repeatedly face two issues: 1) whether the
character of the work falls within the statute and gives rise to a
construction lien, and 2) whether the statutory requirements or
procedures have been satisfied to perfect a construction lien.
When determining these issues, courts generally employ strict
statutory construction.
27
Those claiming a construction lien bear
the burden of establishing that their claim lies within the provisions
19. FARNAM, supra note 10, at 155.
20. F
RIEDMAN, supra note 17, at 178.
21. Id.
22. Id.
23. F
ARNAM, supra note 10, at 155.
24. Jerecki Mfg. Co. v. Struther, Wells & Co., 8 Ohio Cir. Dec. 5, *2 (1897).
25. Id.
26. 53 A
M. JUR. 2D Mechanics’ Liens § 12 (2007).
27. Wind Dance Farm, Inc. v. Hughes Supply, Inc., 792 N.E.2d 79, 82 (Ind.
Ct. App. 2003); Mark Twain K
an. City Bank v. Kroh Bros. Dev. Co., 798 P.2d 511,
515 (Kan. Ct. App. 1990).
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of the statute,
28
and substantial compliance with the statute will not
pass strict scrutiny.
29
As a general rule, if courts determine that
valid construction liens exist, lien statutes are thereafter liberally
construed.
30
Courts interpret construction lien statutes by following the
canons of statutory construction,
31
beginning with the language of
the statute. Construction is unnecessary if the statutory language is
plain and unambiguous.
32
If the language leaves room for
interpretation, courts must examine every word and read every
statutory provision in reference to the whole, while being cognizant
that remedial statutes are construed broadly to effectuate their
purpose and afford the security intended.
33
IV. ELIGIBILITY FOR A CONSTRUCTION LIEN
A construction lien provides statutory protection to parties that
supply la
bor, materials, equipment, and in some cases, professional
services used in the improvement of real property.
34
The laws of
each state often uniquely define those entitled to claim a
construction lien, and no uniform construction lien law exists.
While a majority of states provide an umbrella of protection to
“every person” who participates in the construction of an
improvement to real property,
35
some states are more reserved and
systematically distinguish between classes of laborers and material
suppliers, determining eligibility based upon status or contractual
relationship.
States that distinguish based upon the class of laborer
generally afford lien claims to categor
ies of laborers, general or
prime contractors, subcontractors, material suppliers, equipment
suppliers, and professional service providers.
28. Lentz Plumbing Co. v. Fee, 679 P.2d 736, 744 (Kan. 1984).
29. M
ICH. COMP. LAWS § 570.1302 (2006); N. Concrete Pipe, Inc. v. Sinacola
Cos.-Midwest, Inc., 603 N.W.2d 257, 260 (Mich. 1999).
30. See Lewis v. Wanamaker Baptist Church, 692 P.2d 397, 399 (Kan. Ct. App.
1984); Vulcraft v. Midtown Bus. Park, Ltd., 800 P.2d 195, 199–200 (N.M. 1990).
31. R
OBERT A. KATZMANN, COURTS & CONGRESS 49 (1997).
32. Robinson v. Shell Oil, Co., 519 U.S. 337, 340 (1997).
33. W
ILLIAM N. ESKRIDGE, JR., DYNAMIC STATUTORY INTERPRETATION 323–24
(1994).
34. 53 AM. JUR. 2D, supra note 26, § 12.
35. See A
RIZ. REV. STAT. ANN. § 33-981 (2007); ARK. CODE ANN. § 18-44-101
(2003); C
AL. CIV. CODE §§ 3110, 3106 (1993); OKLA. STAT. tit. 42, § 141 (2001);
T
ENN. CODE ANN. § 66-11-102 (Supp. 2007); WIS. STAT. § 779.01(3) (Supp. 2006).
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Laborer. A laborer is a non-professional who performs work on
site.
36
This is one of the most general categories, and any person
employed to furnish labor in the improvement of real property may
be considered a laborer and, as such, is entitled to a lien.
37
Prime or General Contractor. A prime or general contractor is an
entity that performs and oversees improvements to real property
under a direct contract with the property owner,
38
and is entitled to
a construction lien if it follows the appropriate statutory
requirements.
39
Subcontractor. A subcontractor is a contractor that provides
labor or materials under a contract or other agreement with the
prime contractor,
40
and will be entitled to a construction lien if it
follows the appropriate statutory requirements.
41
Material Supplier. An entity that supplies materials in the
improvement of real property at the request of a property owner,
prime contractor, or subcontractor
42
may be entitled to a
construction lien, depending, in many cases, upon how far
removed the supplier is from the prime contractor.
43
Some states
require the material to be incorporated into the improvement.
44
Others presume that the materials were used if they were delivered
to the construction site, even if they were not actually incorporated
into the improvement.
45
Supplies delivered to suppliers will
generally not qualify for the protection of a construction lien.
46
Equipment Supplier. A party or entity supplying equipment,
machinery, tools, or appliances
47
used in constructing
improvements to real property is generally entitled to a
36. See BLACK’S LAW DICTIONARY 1637 (8th ed. 2004).
37. See id. at 943.
38. See id. at 350–51.
39. See id. at 943.
40. See id. at 1464.
41. See id. at 943.
42. See id. at 998.
43. See id. at 493.
44. Farmers’ Irrigation Sys. Co. v. Kamm, 135 P. 766, 767 (Colo. 1913).
45. See I
ND. CODE ANN. § 32-28-3-1 (2002 & Supp. 2007); Templeton v. Sam
Klain & Son, Inc., 425 N.E.2d 89 (Ind. 1981); Weyerhaeuser Co. v. Twin City
Millwork Co., 191 N.W.2d 401, 291 Minn. 293 (1971); Clyborn v. Reeves, 234
N.E.2d 613 (Ohio Ct. App. 1968).
46. See I
OWA CODE ANN. § 45-501 (2007); Morris County Indus. Park v.
Thomas Nicol Co., 173 A.2d 414 (N.J. 1961); Vulcraft v. Midtown Bus. Park, Ltd.,
800 P.2d 195, 197 (N.M. 1990).
47
See BLACK’S LAW DICTIONARY, supra note 36, at 998.
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construction lien.
48
When the equipment being supplied is rented,
the lien may be asserted for the reasonable value.
49
However,
Delaware’s statute lacks any provision for rental equipment.
50
Professional Service Provider. The category of professional service
providers is broad, with varying lien eligibility depending on the
state. In a majority of states, professional service providers such as
architects, engineers, landscape architects, and surveyors, who add
value to real property by performing preparatory work such as
drawings, design, surveying land and landscape design may be
entitled to a construction lien.
51
Some states require that a
professional service provider use the drawings, plans, or designs in
the improvement.
52
Not all professional services are eligible for a
lien, and a few states exclude certain professional services. For
example, Alabama and South Carolina law provides that a land
surveyor is not eligible for a construction lien.
53
The dissimilarities and nuances among the states regarding
exactly who is entitled to claim a lien support the proposition that a
uniform lien act would be beneficial. A uniform act would clearly
define all those entitled to a construction lien, incorporating
myriad case law from the various states where laborers, service
providers, and material suppliers have pursued mechanics’ liens
through the courts throughout our nation’s history. In general, a
uniform act would define those entitled to a lien based upon the
categories stated above. It would draw a bright line demonstrating
how far removed a prime contractor may be from a lien claimant.
In general, no entity beyond a “third tier” laborer or supplier
should be entitled to lien rights. An example of a “third tier” entity
would be a supplier to a subcontractor who in turn is under
contract with the prime contractor. Allowing lien claims for any
entity further removed than a third tier entity would make it nearly
48. See ARK. CODE ANN. § 18-44-101 (2003); GA. CODE ANN. § 44-14-361(a)(9)
(Supp. 2007); K
Y. REV. STAT. ANN. § 376.010(5), (6) (Supp. 2007).
49. See I
OWA CODE ANN. § 572.2(1) (2007); OR. REV. STAT. ANN. § 87.010(1)-
(3) (2003); U
TAH CODE ANN. § 38-1-3 (2005).
50. Griffin Dewatering Corp. v. B.W. Knox Constr. Corp., No. 98L-09-008,
2001 WL 541476, at *6 (Del. Super. Ct. 2001).
51. See L
A. REV. STAT. ANN. §§ 9:4801-4802 (2007); N.C. GEN. STAT. § 44A-8
(2005); O
R. REV. STAT. ANN. § 87.010(5)–(6) (2003); TEX. PROP. CODE ANN. §
53.021(c) (2007); U
TAH CODE ANN. § 38-1-3 (2005); Zion First Nat’l Bank v.
Carlson, 464 P.2d 387 (Utah 1970); Cain v. Rea, 116 S.E. 478 (Va. 1932).
52. See, e.g., Cubit Corp. v. Hausler, 845 P.2d 125 (N.M. 1992).
53. Wilkinson v. Rowe, 98 So. 2d 435, 438 (Ala. 1957); George A.Z. Johnson,
Jr., Inc. v. Barnhill, 241 S.E.2d 747 (S.C. 1983).
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252 WILLIAM MITCHELL LAW REVIEW [Vol. 34:1
impossible for prime contractors and owners to monitor and
control payments to those working on the project. An unduly
burdensome amount of due diligence and collection of lien waivers
would ensue if parties beyond the third tier could assert lien rights.
V. I
MPROVEMENTS SUBJECT TO CONSTRUCTION LIENS
A party may assert a construction lien for nearly any
contri
bution of material or labor that improves real property.
54
In
general, an improvement constitutes labor or materials that, in
whole or part, are applied to or used in connection with the
erection, alteration, or construction of a value-adding improvement
to a structure or the land upon which the structure rests.
55
An
improvement need not necessarily be visible to qualify for
construction lien protection, but, despite the generally broad
definition of “improvement,” not every contribution will qualify.
The scope of an “improvement” will generally encompass
preparatory work, such as land clearing, well drilling, demolition or
removal of debris, other ground work, and professional services
including surveying and architectural or engineering work.
56
Contributions found not to be lienable by some jurisdictions
include the following: the mining and harvest of matter, mineral,
or agricultural produce from the property for purposes of making
things;
57
the transportation of goods to the site;
58
gasoline to
operate equipment used in the improvement;
59
replacement parts
for equipment;
60
and services in obtaining financing, zoning
variances, and leasing arrangements.
61
A uniform lien act would provide that any labor or material
contributing to visible improvement of real property would qualify
for a construction lien claim. The test for visibility would be
objective, and it could mirror the process used by title and closing
companies in establishing priority for lenders that is secured
54. See 53 AM. JUR. 2D, supra note 26, § 12.
55. See id. § 4.
56. See B
LACK’S LAW DICTIONARY, supra note 36, at 773.
57. M
ONT. CODE ANN. § 71-3-522(5)(b)(i)–(ii) (2007).
58. Mammoet USA, Inc. v. Entergy Nuclear Generation Co., 831 N.E.2d 349
(Mass. App. Ct. 2005).
59. Great Plains Equip., Inc. v. Nw. Pipeline Corp., 979 P.2d 627 (Idaho
1999).
60. Johnson v. Starrett, 127 Minn. 138, 149 N.W. 6 (1914).
61. Phillips-Klein Cos., Inc. v. Tiffany P’ship, 474 N.W.2d 370 (Minn. Ct. App.
1991).
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through first mortgages on construction projects. In those
instances, photos are generally taken of the property prior to the
start of construction, clearly indicating a date and showing that no
visible improvement has occurred on the subject real property. To
qualify as “visible” under a uniform lien act, the labor or material in
question would need to be noticeable through photographs or as-
built drawings of the construction project. The only exceptions
would be groundwork, land surveying, environmental testing, or
architectural work that contributed to the improvement.
Architectural drawings would need to be specifically incorporated
into and used for the project. Those claiming liens for services not
readily visible, such as environmental testing necessary for a project
to proceed, would be required to provide a pre-lien notice to
property owners and the prime contractor before lien rights were
afforded.
VI. P
ROPERTY SUBJECT TO CONSTRUCTION LIENS
Construction projects are generally categorized as either
private
or public. Public projects are those for which the federal,
state, or local governments are contracting for improvement to
government property. With the exception of Kentucky
62
and
Vermont,
63
sovereign immunity and public policy prohibit the
enforcement of construction liens against public property. An
alternate set of federal and state statutes operates to provide
protection to those who contribute to the improvement of public
property. The Miller Act provides federal protection, applying to
all “public” projects where the federal government is the “owner”
and requires prime contractors to furnish a “Payment and
Performance Bond” for all contracts exceeding $25,000.
64
Many
states have adopted the Miller Act on a state level (often referred to
as “Little Miller Acts”), requiring prime contractors to furnish
bonds in the amount of the partial or full contract price to secure
payment for those who contribute to public construction projects.
65
62. KY. REV. STAT. ANN. § 376.210(1)–(3) (2002).
63. No provision in title 9, sections 1921 through 1928 of the Vermont
Statutes differentiates between “public” and “private” property, though one
Vermont court held mechanics’ liens unenforceable against a public school. See
V
T. STAT. ANN. tit. 9, §§ 1921–1928 (2006); Greenough, Cook & Co. v. Nichols, 30
Vt. 768 (Vt. 1858).
64. 40 U.S.C. § 3131 (2000).
65. D
EL. CODE ANN. tit. 29, § 6927(d) (Supp. 2006); GA. CODE ANN. § 13-10-1
(1982 & Supp. 2007); I
DAHO CODE ANN. § 54-1926 (2007); MINN. STAT. §§ 574.26-
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Private projects are those neither owned by governmental
entities nor built for a public use. Private individuals or entities
own and construct most private projects, although projects
undertaken by quasi-governmental
66
and non-profit organizations
may also be considered private projects under state construction
lien statutes.
67
As a general rule, if private property is subject to levy
and sale, it may be subject to a construction lien. However, a
construction lien typically may attach only to the extent of the real
property interest owned by the party contracting for the labor or
materials.
68
Numerous levels of real property interests exist at law,
and any interest in real property, whether fee simple, equitable,
leasehold, or life estate, may generally be subject to a construction
lien.
Construction liens most commonly attach to an owner’s f
ee
simple interest in the improved real property. Many states have
extended the construction lien to attach not only the structure that
was built or improved, but to the land upon which the building
rests, and to any other land around it (such as a parking lot) that
may be necessary for convenient use and occupation.
69
Geographical location may limit the portion of land to which a
construction lien attaches. In urban areas, the lien may extend to
the interest in the entire lot where the improvement rests.
70
In
rural areas, a construction lien is often limited to a maximum
amount of acreage.
71
574.39 (2006 & Supp. 2007); MISS. CODE ANN. § 31-5-51(5) (2005); N.C. GEN.
STAT. § 44A-26 (2005); OKLA. STAT. tit. 61, §§ 1–2 (Supp. 2007).
66. A quasi-governmental project uses public property for private or
proprietary purposes.
See Comstock & Davis Inc., v. City of Eden Prairie, 557
N.W.2d 213 (Minn. Ct. App. 1997).
67. Spaulding v. Thompson Ecclesiastical Soc’y, 27 Conn. 573 (1858); Cain v.
Rea, 166 S.E. 478 (Va. 1932) (holding that a church as a non-profit was subject to a
lien).
68. S.C.
CODE ANN. § 29-5-30 (2007); UTAH CODE ANN. § 38-1-3 (2005); Norris
v. Nitsch, 325 P.2d 326, 333 (Kan. 1958).
69. See, e.g., A
LASKA STAT. § 34.35.055 (2006); CAL. CIV. CODE § 3128 (1993);
C
OLO. REV. STAT. § 38-22-103(1) (2007); MO. REV. STAT. § 429.010 (Supp. 2007);
O
KLA. STAT. tit. 42, § 141 (2001); TEX. PROP. CODE ANN. § 53.022 (2007).
70. M
O. REV. STAT. § 429.010 (Supp. 2007); TEX. PROP. CODE ANN. § 53.022
(2007).
71. See MINN. STAT. § 514.03(3) (2006) (stating that a lien extends to
maximum of eighty acres, or, if homestead property, to forty acres); M
O. REV.
STAT. § 429.010 (Supp. 2007) (limiting lien to whole lot, but not more than three
acres); T
EX. PROP. CODE ANN. § 53.022 (2007) (limiting lien up to fifty acres).
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A lien may also arise when a lessee insists upon improvements
to the property. Depending on the statute, a lien may attach to the
owner’s fee simple interest, the lessee’s leasehold interest, or
neither. Whether a lien attaches and to whose interest it attaches
will often turn on whether the owner authorized or consented to
the improvements requested by the lessee.
In some cases a construction lien may attach to the owner’s fee
interest b
y virtue of a lessee’s actions. When improvements are
made pursuant to an express agreement between the
owner/landlord and lessee, a lien may attach to the owner’s fee
simple interest in the property.
72
More commonly, a lien will attach
only to the leasehold interest in the property. When determining
whether a lien attaches to a leasehold interest, state laws generally
fall into two categories. Some states require consent of the owner,
and others require only a contract entered into by the lessee. In
states which adhere to the former category, a lien that arises due to
improvements made at the insistence of the lessee can attach only
if the owner or landlord consented to the improvement.
73
Absent
consent, the lien will be invalid. In states which fall into the latter
category, a lien will attach to a leasehold interest in the property so
long as the lessee contracts for the improvement.
74
Under this
model, an owner’s knowledge or consent is irrelevant.
A lien may also attach to equitable interests
in property.
Where an individual purchases property under a real estate
contract and causes improvements to be made to that property, a
lien may attach to the person’s equitable interest.
75
A uniform act would clearly define that only “private” real
property is subject to a construction lien. The term “private” would
include land owned by public entities, but used for private
enterprise. Any transferable or assignable interest in private real
property would be subject to attachment by a construction lien.
Claims regarding public property and projects would continue to
72. See S.C. CODE ANN. § 11-35-3030(2) (Supp. 2006); N.D. CENT. CODE § 35-
27-07 (2004); Stern & Son, Inc. v. Gary Joint Venture, 530 N.E.2d 306, 308 (Ind.
Ct. App. 1988); Dunlap v. Hinkle, 317 S.E.2d 508, 512 (W. Va. 1984).
73. See G
A. CODE ANN. § 44-7-1 (2007); UTAH CODE ANN. § 38-1-3 (2005); Lentz
Plumbing Co. v. Fee, 679 P.2d 736 (Kan. 1984).
74. See, e.g., M
ONT. CODE ANN. § 71-3-525(3) (2007); S.C. CODE ANN. § 29-5-30
(2007); 49 P
A. STAT. ANN. § 1303 (2001); Dunlap, 317 S.E.2d at 511.
75. See Brown v.
Gravlee Lumber Co., 341 So. 2d 907, 910 (Miss. 1977);
Gibson v. Bostick Roofing & Sheet Metal Co., 148 S.W.3d 482, 495 (Tex. App.
2004); Feuchtenberger v. Williamson, Carroll & Saunders, 120 S.E. 257, 259 (Va.
1923).
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be administered through the Miller Act and various Little Miller
Acts.
VII.
PERFECTING A CONSTRUCTION LIEN
Construction lien claims are a statutory remedy
, so they must
strictly comply with the applicable state statutory requirements.
Generally all states require the following to perfect an interest in
the improved property: 1) notice to the owner that the claimant
intends to assert a lien in the event of nonpayment, and 2) proper
filing of a construction lien statement with the appropriate
government office. While this process for perfecting a lien is
comparatively similar in each state, the individual state
requirements vary, demanding potential lienors to pay specific
attention and adhere to the applicable state laws. In most cases,
the failure to strictly adhere to the statute is fatal.
Notice. Notice is important to both the potential lien claima
nt
and the contracting owner. Notice to the owner protects him and
his real property and prevents the assertion of unanticipated liens.
76
This notice is often called a “pre-lien notice.” Notice by the
potential lien claimant is often essential to perfecting a security
interest in the improved property and also generally encourages
the owner to make payment and avoid encumbrances on the real
property.
A small number of states, including Idaho, New Hampshire,
and West Vi
rginia, do not require a pre-lien notice to the property
owner.
77
Of the states mandating a pre-lien notice, the
requirements typically fall under two categories: states that require
notice by all potential lienors, and states that determine whether a
pre-lien notice is required based upon the status of the potential
claimant. The requirement for notice based upon claimant status
revolves around the lien claimant’s contractual relationship (or
lack thereof) with the owner. As noted previously, one purpose of
a pre-lien notice is to protect owners from the assertion of
unanticipated liens against their real property.
78
An owner who
76. Schrader Iron Works, Inc. v. Lee, 103 Cal. Rptr. 106, 111 (Cal. Ct. App.
1972); Nasseff v. Schoenecker, 312 Minn. 485, 490–91, 253 N.W.2d 374, 377–78
(1977).
77. These states have no statutory provisions requiring a pre-lien notice. With
the exception of residential construction, there are no pre-lien notice filing
requirements in New Jersey. N.J.
STAT. ANN. § 2A:44A-21(a) (2000).
78. See supra note 76 and accompanying text.
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directly contracts with an individual or entity will seldom be
surprised by the filing of a lien, and as a result many states that base
the notice requirement upon the claimant’s status do not require
prime contractors to give a pre-lien notice.
79
If notice is required of
a prime contractor, it is often required to be given at the time the
contract with the owner is formed.
80
If a party has no direct
contract with the property owner and is under contract with a
prime contractor or subcontractor,
81
notice to the owner is
generally required,
82
with few exceptions.
83
The timing requirements of pre-lien notices vary by state and
often depend upon the status of the potential lien claimant. If a
state mandates a pre-lien notice as a prerequisite to perfecting a
construction lien, the notice deadlines must be strictly followed.
Although a handful of states provide for time extensions under
certain circumstances, failure to provide pre-lien notices within the
specified time requirements will typically invalidate construction
lien rights.
States requiring a pre-lien notice generally base the timing
re
quirements upon one of three key dates occurring during the
construction process: 1) the date prior to labor commencing or
first delivery of materials, 2) the first date on which the labor or
materials are provided, or 3) the last date on which labor or
materials were provided. Alabama and Arkansas both require
notice to be provided before the commencement of labor or
delivery of material.
84
Iowa, Minnesota, and Wisconsin, among
other states, require notice to be given within a specific number of
days from the first date on which the labor or materials are agreed
79. Section 9-104 of the Maryland Real Property Code only requires notice of
subcontractor. M
D. CODE ANN., REAL PROP. § 9-104 (2003).
80. M
INN. STAT. § 514.011 subdiv. 1 (2006); WIS. STAT. § 779.02 subdiv. 2
(Supp. 2006).
81. See W
IS. STAT. § 779.02 subdiv. 1 (Supp. 2006) (stating that no notice is
needed for parties employed by a prime contractor already required to give
statutory notice).
82. See 770 I
LL. COMP. STAT. ANN. 60/21 (2007); MD. CODE ANN., REAL PROP. §
9-104 (2003); MINN. STAT. § 514.011 (2006); WIS. STAT. § 779.02 (Supp. 2006);
Krack Corp. v. Sky Val. Foods, Inc., 273 N.E.2d 202, 203 (Ill. App. Ct. 1971).
83. See M
E. REV. STAT. ANN. tit. 10, § 3253 (Supp. 2006) (codifying a common
law exception to the notice requirement under which the subcontractor need not
notify the owner when the original contractor identified the subcontractor and the
amount owed to the subcontractor on the original contractor’s sworn statement).
84. A
LA. CODE § 35.11.210 (2006); ARK. CODE ANN. § 18-44-115(c) (Supp.
2007); T
ENN. CODE ANN. § 66-11-102 (Supp. 2007).
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upon or provided.
85
Other states, such as Maine and Maryland,
require notice to be given within a specific number of days from
the last date that substantial labor or materials were provided.
86
In
other states, the date on which the lien claimant intends to file a
construction lien triggers the notice deadlines. North Dakota and
Colorado simply require notice be provided prior to filing a
construction lien.
87
The potential lien claimant’s status may also affect the time to
provide a pre-lien notice. Because of the direct contractual
relationship, a prime contractor generally has a significantly
shorter time than a subcontractor to provide a pre-lien notice to
the owner. For example, in Minnesota the prime contractor must
include the pre-lien notice in the written contract.
88
If no written
contract exists, notice must be provided within ten days from the
date labor or materials were verbally agreed upon.
89
In
comparison, a Minnesota subcontractor or supplier under contract
with the prime contractor must provide notice within forty-five days
of the date they first provided labor or material.
90
Notice may be given in a number of ways, including service of
notice by certified mail or personal service to the property owner
91
and the filing of the notice with the office of the county recorder
or registrar of deeds in the county in which the property is
located.
92
The states differ in their notice procedures, but the underlying
reasons for providing notices are similar. A uniform lien act would
streamline this process and set forth a standardized, mandatory
notice procedure for all potential lien claimants. Specifically,
statutory language would be developed for a “pre-lien notice,”
85. IOWA CODE § 572.33(1) (2007) (thirty days from commencement of
furnishing labor or material); M
INN. STAT. § 514.011 (2006) (within ten days); WIS.
STAT. § 779.02(a) (Supp. 2006) (within ten days).
86. M
E. REV. STAT. ANN. tit. 10, § 3253 (Supp. 2006) (ninety days from the last
contribution of labor or material); M
D. CODE ANN., REAL PROP. § 9-104 (2003) (120
days from last contribution of labor or material).
87. N.D. CENT. CODE § 35-27-02 (2004) (requiring notice fifteen days prior to
filing); C
OLO. REV. STAT. § 38-22-109(3) (2007) (requiring notice ten days prior to
filing).
88. MINN. STAT. § 514.011 subdiv. 1 (2006).
89. Id.
90. Id.
§ 514.011 subdiv. 2.
91. C
OLO. REV. STAT. § 38-22-109(3) (2007); MD. CODE ANN., REAL PROP. § 9-
104 (2007); W
IS. STAT. § 779.01(2)(e) (2007).
92. M
E. REV. STAT. ANN. tit. 10, § 3253 (2005 & Supp. 2006); N.D. CENT. CODE
§ 35-27-02 (2004).
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usable by any entity that wished to preserve lien rights, whether it is
a prime contractor, subcontractor, or supplier. This notice would
be required from all potential lien claimants on any project. The
notice would be filed and served in the exact same manner as a
construction lien claim, within proscribed time periods. The prime
contractor would be required to file the pre-lien notice against the
property and serve it upon the property owner either within fifteen
days of the date any written contract for the work is executed or
within fifteen days after a verbal agreement was reached if no
written contract is used. Any subcontractor or supplier would be
required to serve and file a pre-lien notice within fifteen days after
it first works on or supplies material to the project or real property
in question.
This uniform procedure would eliminate the numerous
q
uestions that arise as to whether a pre-lien notice was required or
whether one was properly served. Similar to a construction lien
claim, if the pre-lien notice was not served and filed within the
requisite time period, no construction lien claim could be asserted
at a later date. The county recorder, registrar of titles or deeds, or
district court (the filing offices vary by state) would have a clear
record of those who had filed pre-lien notices. Thereafter, the only
additional necessary evidence would be establishing proof of
service.
Because it is often burdensome for a subcontractor or supplier
to determine the exact identity and address of t
he correct property
owner, a uniform lien act would require a prime contractor to
furnish to the subcontractors and suppliers the name and correct
address of the property owner in any written contract, or within five
days after a verbal agreement is reached. Absent this information
from the prime contractor, a subcontractor or supplier would be
entitled to serve its pre-lien notice upon the prime contractor, who
in turn would have a legal obligation to pass the information on to
the property owner.
The proposed verbiage of a uniform pre-lien notice would be
as follows:
This notice is to advise you of your rights under
___________ law in connection with the improvement to
your property.
Any person or company supplying labor, materials, or
equipment for the improvement to your real property
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may file a lien against your property if that person or
company is not paid for the contributions. We have been:
____hired by you to provide labor, materials, or
eq
uipment for the improvement.
____hired by your prime or general contractor to provide
the following type of service or materials to the
improvement: _________________
____hired by ____________ to provide the following type
of service of materials to the improvement:
_______________
Under __________ law, you have the right to pay
pe
rsons who supplied labor or materials for this
improvement directly and deduct this amount from your
contract with the general contractor, or withhold the
amounts due to the general or prime contractor for 120
days after completion of the improvement unless you are
supplied with a lien waiver signed by the persons or
entities who supplied any labor or materials for the
improvement and who gave you a timely pre-lien notice
such as this one.
A person or entity who fails to pr
ovide and file a pre-lien
notice shall not have the right to assert a lien against your
property.
Filing. Sin
ce a construction lien is a security interest in real
property, recording or filing the lien is necessary to provide notice
of the encumbrance to those having an interest in the property.
Filing requirements are specific to each state but generally begin
with drafting a construction lien document, sometimes referred to
as a verified lien statement, claim of lien, or claim of account. The
construction lien typically requires the claimant to provide some or
all of the following information: 1) a description of the property, 2)
the name of the claimant, 3) the name of the person to whom the
claimant is furnishing labor, material, equipment, and services, 4) a
description of the labor, material, and/or equipment that was
furnished, 5) the contract price, or in the absence of a written
contract, the estimated value of the labor or material furnished, 6)
the amount due to the claimant, and 7) the date the labor,
material, and/or equipment was furnished.
93
Most states will
93. See, e.g., ALASKA STAT. § 34.35.070 (2006); CAL. CIV. CODE § 3084 (1993);
I
DAHO CODE ANN. § 45-507 (2003); MINN. STAT. § 514.08 (2006); N.Y. LIEN LAW § 9
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require that the construction lien be verified by a signed affidavit
or notarized signature of the claimant or claimant’s agent.
94
The time in which to file a construction lien requires special
attention. Failure to adhere to filing deadlines may render a
construction lien invalid. Generally, the last date that labor or
materials were provided governs the filing period.
95
Courts have
interpreted the last day of labor to mean either the last date of
substantial contribution of labor or materials to the construction
improvement project
96
or the date when the requirements of the
contract are fulfilled.
97
Still, what constitutes a last contribution is
not always clear. Courts have held that de minimus work
98
such as
adjusting a screen door, work not authorized by the owner,
99
warranty work, replacement of defective items, periodic testing,
100
and contributions made for the purpose of extending the filing
period do not qualify.
101
Filing periods range from ninety days
102
to
eight months
103
from the last contribution of labor or material.
The time period in which to file a construction lien may also
be
affected by the status of a potential lienor. Similar to notice
requirements, state filing requirements may be divided into two
categories: 1) states that distinguish between classes of potential
lienors, basing the time to file on the lienor’s status, and 2) states
that make no such distinction, requiring the same filing time for all
potential lien claimants regardless of status. While some
(2007); WYO. STAT. ANN. § 29-1-301(b) (2007).
94. See, e.g., A
RK. CODE. ANN. § 18-44-117(a)(2) (Supp. 2007); COLO. REV.
STAT. § 38-22-109 (2007); IDAHO CODE ANN. § 45-507 (2003); IOWA CODE ANN. §
572.8 (Supp. 2007).
95. See, e.g., A
LASKA STAT. § 34.35.068(a) (2006); IOWA CODE § 572.9 (Supp.
2007); N.D.
CENT. CODE § 35-27-13 (2004).
96. See Ark. La. Gas Co. v. Moffitt, 436 S.W.2d 91, 97 (1969) (holding that
adjustment of i
nstalled equipment did not extend the date for work done past the
date of installation).
97. Tym v. Ludwig, 538 N.W.2d 600, 604 (Wis. Ct. App. 1985) (holding that
the time for filing a lien is measured by the original installation)
.
98. See, e.g., Geo. Sedgwick Heating & Air Conditioning Co. v. Riverwood
Cos., 409 N.W.2d 289, 290-91 (Minn. Ct. App. 1987).
99. See, e.g., Guy T. Bisbee Co. v. Granite City Investing Corp., 159 Minn. 442,
446, 199 N.W. 17, 18 (1924).
100. See, e.g., Thorson v. Pfeifer, 145 N.W.2d 438, 439-40 (S.D. 1966).
101. See R.B. Thompson, Jr. Lumber Co. v. Windsor Dev. Corp., 374 N.W.2d
493, 498 (Minn. Ct. App. 1985).
102. See ALASKA STAT. § 34.35.068 (2006); IND. CODE § 32-28-3-3(3)(a)(2)
(Supp. 2007); N.J.
STAT. ANN. § 2A:44A-6 (2000); N.D. CENT. CODE § 35-27-13
(2004).
103. See N.Y.
LIEN LAW § 10(1) (2007).
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subcontractors and other laborers may have longer periods of time
to provide pre-lien notice to the owner, some states afford them
significantly less time than that given to prime contractors. In
Maine, New Mexico, and Wyoming, for example, prime contractors
have 120 days from the date of last contribution, but all others have
only ninety days.
104
An owner of improved property may in some circumstances
take steps that affect the time in which a construction lien must be
filed. In some states, a property owner may shorten the time
period to file construction liens through special notice filings. For
example, Alaska provides a potential lien claimant ninety days from
the date of last contribution.
105
However, a property owner may file
a “notice of completion” and thereby reduce the time period to
fifteen days from the date he files it.
106
Because Alaska does not
require the owner to serve the notice of completion, a potential
lienor may not be aware that one has been filed and could easily
miss the deadline to file a construction lien.
107
California law has a
similar provision, stating that all claimants have ninety days from
completion of the project to file a construction lien.
108
However, if
an owner files a “notice of completion,” he may shorten the filing
period, leaving prime contractors with sixty days to file and all
other claimants thirty days from the date the notice of completion
is filed.
109
A construction lien statement must also be filed with the
proper county office as prescribed by statute. Most commonly,
construction liens are filed with the office of the county clerk
110
or
registry of deeds
111
in the county where the real property is located
or in some cases the district court.
112
The amount of the claim may
104. See ME. REV. STAT. ANN. tit. 10, § 3255(1) (Supp. 2006); N.M. STAT. ANN. §
48-2-6 (2003); W
YO. STAT. ANN. § 29-2-106(a) (2007).
105. A
LASKA STAT. § 34.35.068(a)(2) (2006).
106. Id. § 34.35.068(b).
107. Protection will be afforded to lienors who choose to file a notice of intent
to file lien desp
ite no requirement, which in turn requires the owner to give notice
to the potential lienor of his intent to file a notice of completion. Id. § 34.35.068.
108. C
AL. CIV. CODE §§ 3115, 3116 (1993).
109. Id. § 3117.
110. See, e.g., COLO. REV. STAT. ANN. § 38-22-109(12) (2007); IDAHO CODE ANN.
§ 45-507(1) (2003); N.M.
STAT. § 48-2-6 (2003); W. VA. CODE. ANN. § 38-2-8 (2005);
W
YO. STAT. ANN. § 29-1-301(a) (2007).
111. See, e.g., S.D.
CODIFIED LAWS § 44-9-15 (2004).
112. See, e.g., I
OWA CODE ANN. § 572.8 (Supp. 2007); KAN. STAT. ANN. § 60-1102
(2005); M
E. REV. STAT. ANN. tit. 10, § 3255 (2005 & Supp. 2006); MD. CODE ANN.,
REAL PROP. § 9-105 (2003); N.D. CENT. CODE § 35-27-25 (2004).
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dictate the filing location. For example, in Delaware, claims for less
than $100 are filed with the justice of the peace.
113
Filing offices are not charged with determining the legal
validity of a claimant’s lien.
114
At most, recording clerks are
charged only with ensuring that the document meets the statutory
content requirements.
Under a uniform act, the construction lien claim document
would contain the following general i
nformation:
• A description of the property;
• The name of the claima
nt;
• The name
of the person to whom the claimant is
furnishing labor, material, equipment, and/or services;
• A description of the la
bor, material, and/or equipment
that was furnished;
• The contract price, or in the absence of a written
contract, the estimated value of the labor or material
furnished;
• The amount
due to the claimant; and
• The date the labor,
material, and/or equipment was
furnished.
The universal time in which to file a construction lien would
be 120
days from the last date of work or contribution of materials.
Service of the construction lien would also need to occur within the
120-day period and would be effective upon mailing, by certified
mail or registered mail with a return receipt requested, within the
120-day period (provided it can be demonstrated that the mailing
was addressed to the last known or discoverable address for the
party being served). All potential lien claimants would be subject
to the same time requirements with no distinction based upon the
nature of the entity or contribution provided.
113. DEL. CODE ANN. tit. 25, § 2731 (2006).
114. Filing a construction lien against property by which state law does not
provide for can result in a “slander of title” issue.
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Property owners would have the ability to file a “notice of
completion” document against the subject property to shorten the
filing time for a construction lien. This document would also need
to be served upon every person or entity whose rights the owner
wishes to affect. A properly served and filed notice of completion
would reduce the construction lien filing time from 120 days to
sixty days from the last date of labor or materials provided by the
applicable person or entity. However, any affected entity could
challenge a notice of completion as premature, and a lien claimant
could attempt to prove that the project was unfinished at the time
the notice of completion was served. The standard for determining
completion would be the “substantial completion” standard, which
would generally provide that the following has occurred:
Performance of all of the essentials necessary to the full
accomplishment of the purposes for which the thing
contracted for has been constructed, except for some
slight and unintentional defects which can be readily
remedied or for which an allowance covering the cost of
remedying the same can be made from the contract
price.
115
VIII. OWNER REMEDIES OR DEFENSES
A property owner may have a number of defenses to a
constru
ction lien claim, including traditional defenses such as
breach of contract or defective workmanship. The property owner,
however, may also assert defenses unique to construction liens,
typically focusing upon the lien claimant’s alleged failure to strictly
comply with the applicable lien statute. These defenses might
include:
• The lien claimant is not a person belongin
g to a class
protected by a construction lien;
• No lienable “improvements” were made;
• The
owner did not consent to or have knowledge of
the improvement;
116
115. Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982). See also
Jacob & Youngs, Inc. v. Kent, 129 N.E. 889, 891 (N.Y. 1921) (holding that the
measure of allowance is not the cost of replacement, but the difference in value).
116. See N.Y. L
IEN LAW § 3 (2007) (stating lien amount is for principal and
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• The amoun
t claimed in the lien was fraudulently
overstated;
117
• No money is
owed;
118
• The possession of a lien waiver signe
d by the party who
made the improvement;
119
• Failure to give statutory
notice;
• Failure to fil
e in a timely manner;
• Failure to c
omply with service requirements;
• Failure to join the n
ecessary parties; and
• Failure
to comply with any other statutorily mandated
provision.
120
An owner may also, in many cases, pursue the remedy of
bon
ding. An owner may often protect his property against liens or
dissolve liens that have already attached by filing a bond.
121
The
amount of the bond is typically the contract price, or in the case of
no contract, for the fair value of the labor and/or material
contributed to the construction project.
122
Other states require a
cash deposit with the court to discharge a construction lien.
123
Under a uniform act, property owners or prime contractors
would be entitled to post with the court cash or a payment bond
equal to one and a half times the amount of the applicable
construction liens. Upon posting of the requisite cash or bond, the
interest of the value or agreed upon price of the material and or labors).
117. A lien that fraudulently overstates or exaggerates the amount of a lien,
whether willfully or negligently will be invalid.
See, e.g., F
LA. STAT. § 713.31 (Supp.
2007); M
INN. STAT. § 514.10 (Supp. 2007); N.J. STAT. ANN. § 2A:44A-15 (2000).
118. See N.D. C
ENT. CODE § 35-27-02 (2004); N.Y. LIEN LAW § 3 (2007).
119. See N.D. C
ENT. CODE § 35-27-02 (2004).
120. See M
ASS. GEN. LAWS ANN. ch. 254, § 15A (2004).
121. See N.H. R
EV. STAT. ANN. § 511:48 (2007); N.C. GEN. STAT. § 44A-20(f)
(2005); W
ASH. REV. CODE ANN. § 60.04.161 (2004).
122. See M
ASS. GEN. LAWS ANN. ch. 254, § 12 (2004); WASH. REV. CODE ANN. §
60.04.161 (2006).
123. See M
INN. STAT. § 514.10 (Supp. 2007).
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court would issue an order discharging the property from the effect
of the construction lien, and the lien would thereafter attach the
funds or bond on deposit with the court.
IX. A
CTION FOR FORECLOSURE
A filed construction lien does not encumber the real property
forever. The lien must typically be enforced by
filing a complaint
to foreclose upon it with the appropriate court and within the
statutory period, naming all necessary parties and setting forth all
allegations supporting the claim for lien.
What to File. In general,
a summons and complaint are drafted
and filed to commence foreclosure of a construction lien. The
complaint requests that the court determine the validity and
amount of the lien, determine the validity and amount of other
liens or encumbrances on the property, order the property to be
sold to satisfy the debt, and determine the priority of the various
lien holders.
In addition to the complaint, filing a notice of lis pendens is
also often
required.
124
The document gives notice that the property
is the subject of pending litigation, and it will generally contain the
names of the parties to the action, the nature of the action, and the
legal description of the property.
125
Where to File. The complaint is filed with the appropriate court,
in most cases the circuit, district, or superior court of the county in
which the property is located. The appropriate court, however,
may differ based upon the amount of the claim. In Florida, claims
for less than $15,000 must be filed with the county court while
claims for $15,000 or more are filed with the circuit court.
126
The
amount necessary to secure the unpaid contract price determines
the amount of the lien.
127
If a contract price was not previously
agreed upon, the amount due becomes the “reasonable value” of
all labor, material, services or equipment provided.
128
124. See, e.g., 770 ILL. COMP. STAT. 60/34 (2006); LA. REV. STAT. ANN. §
9:4833(F) (2007); N.J. S
TAT. ANN. § 2A:44A-14(c) (2000); MINN. STAT. § 514.12
(2002).
125. E.g. N.Y. L
IEN LAW § 17 (2007).
126. Alexdex Corp. v. Nachon Enter., 641 So. 2d 858, 862 (Fla. 1994).
127. MONT. CODE. ANN. § 71-3-526(1) (2007); NEB. REV. STAT. § 52-
136(1)(a)(3) (2002); N.M.
STAT. ANN. § 48-2-12 (2003); N.D. CENT. CODE § 35-27-
06 (2004).
128. A
LASKA STAT. § 34.35.120.5 (2006); NEB. REV. STAT. § 52-127(2) (2002).
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All parties deemed “necessary” by statute must be named as
parties to the foreclosure action. Where some states require only
the owner of the property be made party to the action
129
and
joinder of other interested parties is optional,
130
other states
mandate that all persons having an interest in the property be
named as parties.
131
In the states where naming other interested
parties is optional, the judgment will not be binding on unnamed
parties.
132
When to file. The foreclosure action must be commenced
within the statute of limitations. The time in which to file a
complaint is often dictated by the date the construction lien was
filed,
133
but may be determined by the date of the debt’s maturity,
134
or the date labor or materials were last contributed to the project.
135
The date a debt matures has been construed to mean the date the
debt is contractually due.
136
If the parties did not contract for that
date, courts will use the date of the last contribution of labor or
material.
137
In some states a property owner may shorten the time in which
to file a complaint by filing a written demand to commence suit or
notice of contest.
138
In such cases, a lien claimant typically has
thirty days from receiving the commencement or notice of contest
demand to enforce the lien by filing a complaint.
139
If a lien holder
129. E.g., Stuart Enter. v. MRM Constr. Co., 449 S.E.2d 20 (N.C. Ct. App.
1994); Cascade Elec. Co. v. Associated Creditors, Inc., 224 P.2d 146 (Mont. 1950).
130. E.g., A
LA. CODE § 35-11-223 (2006); MONT. CODE ANN. § 71-3-561 (2007).
131. E.g., K
AN. STAT. ANN. § 60-1106 (2005); N.Y. LIEN LAW § 44 (2007);
Monterey S.P. P’ship v. W.L. Bangham, 777 P.2d 623 (1989).
132. E.g., A
LA. CODE § 35-11-223 (2006).
133. See, e.g., I
DAHO CODE ANN. § 45-510 (2003); IND. CODE ANN. § 32-28-3-6
(2002); K
AN. STAT. ANN. § 60-1105 (2005); N.M. STAT. ANN. § 48-2-10 (2003); N.D.
C
ENT. CODE § 35-27-25 (2004); OKLA. STAT. ANN. tit. 42, § 172 (2001); 49 P.A.
CONS. STAT. ANN. § 1701 (2006).
134. See, e.g., A
LA. CODE § 35-11-221 (2006).
135. See, e.g., M
INN. STAT. § 514.12 (2006); N.J. STAT. ANN. § 2A: 44A-14(a)(1)
(2000); N.C.
GEN. STAT. ANN. § 44A-13 (2005); S.D. CODIFIED LAWS § 44-9-24
(2004).
136. See Coastal Millwork, Inc., v. Yeager, 510 So. 2d 188, 189 (Ala. 1987).
137. E.g., id. at 189.
138. See, e.g., 770 I
LL. COMP. STAT. ANN. 60/24 (Supp. 2007); IND. CODE ANN. §
32-28-3-10 (2002); N.D.C
ENT. CODE § 35-27-25 (2004); S.D. CODIFIED LAWS § 44-9-
26 (Supp. 2007).
139. See, e.g., I
ND. CODE ANN. § 32-28-3-10 (2002); N.D. CENT. CODE § 35-27-25
(2004); S.D.
CODIFIED LAWS § 44-9-26 (Supp. 2007).
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does not enforce the lien within the statutory time allotment, the
lien will expire and no longer encumber the property.
140
If a lien claimant succeeds at trial, a court will generally order
the county sheriff to auction either the entire property, or as much
of the real property as is needed, to satisfy the debt.
141
In most
states the sale will be contingent upon the owner’s right to
“redeem” the property by satisfying the outstanding debt in full
within a certain time period from the date of the sale.
142
It would be difficult to create a uniform standard for
construction lien foreclosures and litigation because each state
incorporates different rules of civil procedure and local rules.
Further, each state’s independent case law dictates certain local
procedures. A uniform act, however, would provide for a standard
time period within which to serve and file a foreclosure action. A
reasonable time period under a uniform act would be one year
from the date a construction lien is filed against the subject
property, as opposed to having that time period run from the last
date of work.
X. L
IEN PRIORITIES
A construction lien is a filed claim against real property and is
o
ften just one of many encumbrances of record. As such, the
seniority or priority of the various encumbrances filed against the
land is an important element when attempting to enforce a
construction lien. For example, if the property is heavily
encumbered with senior liens to the point that no equity exists
from which to satisfy the construction lien amount, then a
foreclosure proceeding might be a futile exercise.
Traditionally, real estate encumbrances are prioritized
through the “first in time, first in right” theory,
meaning that the
encumbrances take priority in the chronological order of their
filing. This rule is not absolute when dealing with construction
liens. While some states apply the “first to file” rule, many states
140. See, e.g., N.M. STAT. ANN. § 48-2-10 (2003); N.Y. LIEN LAW § 19(2),
21(2)(b) (2007); O
KLA. STAT. ANN. tit. 42, § 177 (2001); R.I. GEN. LAWS § 34-28-10
(Supp. 2006); S.D.
CODIFIED LAWS § 44-9-26 (Supp. 2007).
141. See, e.g., M
ASS. GEN. LAWS ANN. ch. 254, § 18 (2004); N.H. REV. STAT. ANN.
§ 529:19 (2006).
142. See, e.g., A
LA. CODE § 11-48-54 (2006); MASS. GEN. LAWS ANN. ch. 254, § 20
(2004); M
ICH. COMP. LAWS ANN. § 600.3140 (Supp. 2007); MINN. STAT. §§ 514.15,
550.24 (2006).
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differ in their approaches when prioritizing a construction lien in
comparison with mortgages, tax liens, judgment liens, and other
construction liens.
Construction Liens versus Miscellaneous Liens and Encumbrances.
As a general
rule, a construction lien takes priority over all other
liens or encumbrances attaching after the first date that labor or
material were contributed
143
or after the first date of actual physical
improvement.
144
Federal and state tax liens take priority in some
jurisdictions.
145
Competing Construction Liens. While a few jurisdictions apply
the “first to file” rule to construction liens,
146
most states either
provide that construction liens have equal priority or follow a
hierarchy that determines priority based upon the class of the lien
claimant.
The states giving construction lien claimants equal standing
do
so regardless of who first gave notice, who first performed labor or
supplied material, or who first filed their construction lien.
147
Subsequently if the proceeds of the property sale are insufficient to
satisfy all liens in full, they are distributed pro rata among each of
the claimants with a perfected lien.
148
This approach makes sense
from an equitable view. If the “first to file” rule applied, the
excavator would nearly always have priority over the roofing
contractor simply because the excavator began and finished his
work first and was, therefore, forced to file his construction lien
sooner.
Other jurisdictions rank priority based upon the class of the
lien holder.
With minor variations, the hierarchy of classes is
relatively uniform. Commonly, the laborer has first priority,
143. ALA. CODE § 35-11-211 (2006); CONN. GEN. STAT. ANN. § 49-33(b) (2006);
K
AN. STAT. ANN. § 60-1101 (2005); KY. REV. STAT. ANN. § 376.010 (Supp. 2007); MD.
CODE ANN., REAL PROP. § 9-108 (2003); MINN. STAT. § 514.05 (2006); MO. REV.
STAT. § 429.060 (1992); MONT. CODE ANN. § 71-3-542(1) (2007); N.D. CENT. CODE
§ 35-27-03 (2004); S.C.
CODE ANN. § 29-5-70 (2007).
144. M
ICH. COMP. LAWS ANN. § 570.1119(2) (2006).
145. E.g., A
LA. CODE § 11-48-29(a) (2006); GA. CODE ANN. § 44-14-361.1
(2002); H
AW. REV. STAT. ANN. § 507-46 (2006); Williams v. Rabren, 431 So. 2d 505,
508 (Ala. 1983).
146. A
LASKA STAT. § 34.35.255 (2006); IOWA CODE ANN. § 572.18 (Supp. 2007).
147. See A
RIZ. REV. STAT. ANN. § 33-1000 (2007); GA. CODE ANN. § 44-14-361
(Supp. 2007); K
AN. STAT. ANN. § 60-1101 (2005); MD. CODE ANN., REAL PROP. § 9-
108 (2003); M
O. REV. STAT. § 429.260 (1992); MONT. CODE ANN. § 71-3-541 (2007).
148. See A
LA. CODE § 35-11-228 (2006); ARIZ. REV. STAT. ANN. § 33-1000(B)
(2007); N.H.
REV. STAT. ANN. § 447:12 (2002); S.C. CODE ANN. § 29-5-360 (2007).
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followed by the material supplier, the subcontractor, and finally the
prime contractor.
149
Upon sale of the real property, if the proceeds
are insufficient to satisfy the debts of all classes, the funds are
applied to the debts of the first class before any distributions to
subsequent classes. If funds are insufficient to pay all claims in any
given class, they are dispersed pro rata among the lien holders in
that class.
150
Construction Liens versus Mortgages. In many circumstances, a
construction lien will enjoy priority over other encumbrances.
However, this may not be true with regard to mortgages or other
financing instruments in place prior to the commencement of
construction.
In determining the priority of a
mortgage lien, some states
review factors such as whether the mortgagee had knowledge of the
extent of the improvements or of the effective date of the mortgage
in relation to the date the construction lien was filed. Others
provide that a mortgage lien trumps a construction lien if the
mortgage was filed prior to the commencement of actual visible
improvement on the subject real property.
When knowledge of the improvement is an element affecting a
mortgag
or’s priority, a construction lien will not take priority over a
mortgage unless the lien claimant can establish that the mortgagee
consented to, and had knowledge of, the extent of the
improvements.
151
A construction lien may also be subordinate to a mortgage if it
is filed subsequent to a mortgage or deed of trust.
152
The priority
date for a mortgage may be based upon the date the mortgage is
executed and funds dispersed,
153
the date the mortgage is
recorded,
154
the date work commences,
155
or the date of actual
149. See, e.g., COLO. REV. STAT. § 38-22-108 (2007); FLA. STAT. ANN. § 713.06(4)
(Supp. 2007); I
DAHO CODE ANN. § 45-512 (2003); NEV. REV. STAT. ANN § 108.236
(2007); N.Y. L
IEN LAW § 13(1) (2007); N.D. CENT. CODE § 35-27-22 (2004).
150. See, e.g., I
DAHO CODE ANN. § 45-512 (2003); KY. REV. STAT. ANN. §
376.010(1) (Supp. 2007); Valley Fed. Sav. & Loan Ass’n v. T-Bird Home Ctrs., Inc.,
741 P.2d 826, 829 (N.M. 1987).
151. Carey v. Boulette, 182 A.2d 473, 478 (1962).
152. See, e.g., I
OWA CODE ANN. § 572.18(2) (Supp. 2007); MICH. COMP. LAWS
ANN. § 570.1119 (2006); MO. REV. STAT. § 429.050 (1992); MONT. CODE ANN. § 71-
3-542 (2007); N.H. R
EV. STAT. ANN. § 447:12-a (2002); R.I. GEN. LAWS § 34-28-
25(a)(2) (2006); S.C. C
ODE ANN. § 29-5-70 (2007).
153. E.g., Kilgore Hardware & Bldg. Supply, Inc., v. Mullins, 387 So. 2d 834
(Ala. 1980).
154. E.g., S.C.
CODE ANN. § 29-5-70 (2007); Richmond v. Malkin, 6 Conn. Supp.
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improvement to the property.
156
The date work commences and
the date of actual improvement are distinguishable.
Commencement is established based upon the first application of
any labor or delivery of material to the site while actual
improvement requires some visible physical alteration that adds
value.
157
A construction lien filed prior to the execution or
recording of a mortgage will take priority. Therefore, a mortgagor
will typically request lien waivers from all potential lien claimants to
establish first priority before disbursing funds.
Subsequent Purchasers.
A purchaser of real property upon which
a construction lien has been filed might take the property free and
clear of such encumbrances, depending upon two important
factors: 1) if the purchaser did so without actual or constructive
knowledge of the outstanding debt, and 2) if title was conveyed
prior to the date the construction lien was filed.
158
In some
jurisdictions, a construction lien might still attach to the real
property after transfer to a subsequent purchaser if notice was
provided prior to the commencement of actual and visible
improvement
159
or if a lien claimant has already filed a lien claim.
160
In a few states, a lien may also attach after a sale to an innocent
bona fide purchaser, but only as long as the lien claimant is still
within its time parameters to file a construction lien.
Since lien priorities are generally a creature of common law
rather than
statute, providing for such priorities in a uniform lien
act would be difficult. Therefore, determining the priorities and
standing of various lien claimants in each state would be best left to
the laws and procedures already in place. In the event a uniform
practice emerged, it would likely involve a presumption that all
interests of record prior to the filing of a construction lien would
have seniority. To rebut this presumption, the construction lien
claimant would need to establish that visible improvement on the
97 (Conn. Super. Ct. 1938); Peoples Bank & Trust Co. v. L & T Developers, 434
So. 2d 699, 708 (Miss. 1983).
155. E.g., N.D. CENT. CODE § 35-27-03 (2004); Simmons First Bank of Ark. v.
Bob Callahan Servs., Inc., 13 S.W.3d 570 (Ark. 2000).
156. E.g., M
ICH. COMP. LAWS ANN. § 570.1119 (2006).
157. See Portage Realty Corp. v. Baas, 298 N.W.2d 892 (Mich. Ct. App. 1980).
158. See, e.g., M
E. REV. STAT. ANN. tit. 10, § 3255 (2005 & Supp. 2006); Ball v.
Vogtner, 362 So. 2d 894 (Ala. 1978); Green v. Clyde, 97 S.W. 437 (Ark. 1906);
Willingham-Tift Lumber Co. v. Barnes, 93 S.E. 201 (Ga. 1917).
159. See M
INN. STAT. § 514.05 (2006); Kloster-Madsen, Inc., v. Tafi’s, Inc., 226
N.W.2d 603 (Minn. 1975).
160. See M
E. REV. STAT. ANN. tit. 10, § 3255(2) (Supp. 2006).
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subject project commenced prior to the recording or filing of the
mortgage or other lien over which the construction claimant wishes
to establish priority. Further, all mechanic’s lien claimants working
on the same project would have equal standing. To provide
otherwise would reward the excavator over the painter simply
because the former began work earlier in the project by necessity.
XI. C
ONCLUSION
The origins and principles underlying construction lien claims
are similar throughout the nation, but the rules
and procedures for
perfecting them are not uniform. Careful attention must be paid
to the statutory requirements in any jurisdiction where a
construction lien is sought, because failure to follow the letter of
the law is often fatal to a construction lien claim.
A uniform lien act would easily enable parties in the
constru
ction industry to know their rights and responsibilities,
particularly parties who work in multiple states. Similar to the
Uniform Commercial Code, a uniform lien act would have
universal applicability and create a situation where parties knew
their rights and deadlines no matter where the work was
performed. This uniformity would reduce litigation over nuances
or loopholes in various state laws and lead to a standardized system
for asserting, enforcing, and litigating construction lien claims.
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