Real life issues in mechanics liens

ALTHOUGH MECHANICS liens are creatures of state laws, and no two laws (or state court systems) interpret them exactly the same way, some issues do come up frequently but arent always explained to you in advance. Moreover, most contractors do not think about lien rights until they actually believe that they arent going to be paid any other way. Thinking about these issues in advance can help you avoid

ALTHOUGH MECHANIC’S liens are creatures of state laws, and no two laws (or state court systems) interpret them exactly the same way, some issues do come up frequently — but aren’t always explained to you in advance. Moreover, most contractors do not think about lien rights until they actually believe that they aren’t going to be paid any other way.

Thinking about these issues in advance can help you avoid some of the stickier situations in collections later. This is particularly true if you start doing business in a new state.

Who can file a lien? Don’t assume that because you have lien rights in one state that this will be true in other states. For example, in some states, only the general contractor can file. In other states, only generals and subs can file. In still others, only generals, subs and suppliers to subs can file. And there are states where anyone who did work on the job can have a lien.

This may result in an owner, general or upper-tier sub needing to get lien waivers from people you would not have expected to be able to cause problems later — from the guy who provided the nails to the gal who leased the forms.

For what work can you file a lien? While most of us follow the old adage of "labor or materials that improved the property," you’d be surprised at what some states will allow. In some states:

l An architect can lien a project even if his design is never used.

l Interest is usually allowed, although maybe not at as high a rate as the written contract might allow.

l Work specially fabricated but not installed might not be lienable, but some states expressly allow it by statute, although they may require the vendor to give special notice in advance of starting fabrication.

l Employee leasing firms may be able to lien property, even if all they did was put all your sub’s employees on their payroll, processed payroll checks and advanced workers’ comp insurance premiums.

l Project management firms can lien, although it may depend on whether they actually did field work.

Who has the burden of proving that goods went into the project? In most states, the lien claimant has the burden of proof, but it is not too difficult to carry this burden. It can be done through evidence of delivery (delivery tickets) or of incorporation of materials into a project (what you can see) or sworn statements from people who were on the job.

The burden is a little trickier for materials delivered (but not proven to have been used) or equipment "stored" on site, or goods that the contractor comes in and picks up. States differ on whether the owner will have to pay for these kinds of things, and the outcome may turn on whether the claimant can prove that the owner had notice. Consequently, it’s a good idea to have a practice of sending notice to the owner, general contractor — to everyone — that something was sold or leased to someone who said that it was going into this job.

When does a claimant’s time to file start to run? Is it from when the claimant’s work is done, or when the project is done? Of course, the better course is to file as early as the earliest date might suggest, but this is an area where the states vary tremendously.

In some states there is no need to worry about filing until the owner has notified you that the project is complete, while in other states you have only 90 or 120 days from when you last delivered materials or did work, regardless of what else is going on at the site. In most states, punch-list work counts — but only if it was done to complete the work, and not to repair the work. Warranty work just about never counts to extend your time to file.

How far does an owner’s financial exposure go? If he’s already paid out the full contract amount, is he protected? The states are all over the place on this issue, some leaning in favor of protecting the owner and others wanting to protect subs and suppliers.

How can you avoid liens from suppliers who applied your payments to other invoices of your sub? It is not unusual for a lien to be filed by a supply house that was paid for your job, but applied that payment to other, older invoices. Writing a joint check won’t solve this problem unless you note on the check which invoices are being paid.

There are as many different answers to these questions as there are states and judges to interpret the laws in them. All you can do is be armed with knowledge of what risks you have to run, so that, with the help of your lawyer, you can sell work intelligently and be able to use mechanic’s lien laws to your advantage.