Mechanic’s Liens: Traps for the Unwary
Planning on buying real estate? Or providing labor, equipment or services to improve real estate? Or hiring contractors for a commercial property? Then you are advised to understand how mechanic’s liens work.
Mechanics liens secure payment for contractors, material suppliers and laborers providing products or services for real estate improvements.
“Improvement” means constructing, altering or demolishing a building, doing work on a bridge, an oil well or on fixtures inside a building.
A contractor, supplier or laborer needs to know or keep track of:
- Who owns the job.
- Who is financing the job.
- When first work (or first delivery of materials) was done.
- The timing of necessary filings.
A real estate owner needs to know:
- Who may file a lien.
- When the deadline to file a lien expires.
- When an already filed lien expires.
- Where the right to lien is in dispute, how to “force the issue.”
A potential buyer for real estate needs to know:
- Do any liens presently affect the property?
- Has any work recently been done on the property which might give rise to liens?
To perfect lien rights, specific actions are required. When the typical commercial project begins (i.e., a nonresidential and non-oil and gas project), the owner is obliged to post and record a notice of commencement in the county where the project is located before the first work is performed. This describes the project, identifies the contractor and lists banks providing financing, giving subcontractors and suppliers information they would need to assert a lien, if necessary. If an owner fails to do so, subs and suppliers may make demand, giving the owner 10 days to file the notice. Failure to respond means the time for filing liens is extended, so an owner should always file the notice. A bank providing financing can also file the notice of commencement.
An owner who has hired a general contractor needs to know the identity of subcontractors and whether they are being paid. To that end, subs and suppliers are obliged to file a notice of furnishing within 21 days of initially providing work or supplies. If a sub or supplier misses the deadline, lien rights only extend back to work or materials provided within 21 days. Failure to file at all means lien rights are lost.
Where a sub, supplier or laborer has not been paid and where the notice of furnishing has been filed, to perfect a lien, the claimant can file in the county where the job is located a Lien Affidavit stating:
- The name and address of the claimant.
- The name of the owner.
- A description of the property being liened.
- The amount due above legal set-offs.
- The last date work was performed, or materials furnished.
After filing, the lien claimant must then file a copy of the lien affidavit on the owner within 30 days.
The lien affidavit must be filed:
- For one or two-family dwellings, within 60 days of last work.
- For oil and gas well, within 120 days of last work.
- For all other projects, within 75 days of last work.
Mechanics liens last six years. However, where the validity of a lien is disputed, an owner (or general contractor) can force the issue before then by serving on the person a filing the lien affidavit a notice to commence suit. The lien claimant must then file suit to foreclose the lien within 60 days – or lose the lien.
Someone buying real estate should in the purchase agreement secure from the seller in the representations and warranties that no work has been performed upon the property within the periods above.
Copyright 2020 The Business Journal, Youngstown, Ohio.