Introduction to Mechanic’s Liens

Liens exist in many types and by many names for both real and personal property. “Mechanic’s lien” is the general term for a lien on real property by any licensed professional who contracts with the owner to improve the land structure or supply materials for the improvement. Their main purpose is to protect contractors. They are necessary to maintain a sense of order and structure in a business fraught with perils and uncertainty. In a world without mechanic’s liens, if an owner refused to pay for improvements, the contractor and subcontractor would be forced to either file for suit and wait for judgment or storm the property and forcefully remove their improvements.

Mechanic’s liens existed in the old civil law countries of France, Belgium and Spain, and possibly even the Roman Empire. In the United States, they were first employed to encourage construction in Washington D.C. when it first became the capital city. The U.S. version of mechanic’s liens were different in that they gave the builders not only a right to the improvement’s value, but a right in the land itself.

Owners of real property should be aware that if they contract with a licensed professional to improve their property, they are creating a robust liability against their real property. Non-payment of the contractor will most likely result in a loss of the property. The lien arises against a property from the moment contractual work is first begun (usually, the moment the first materials are carried onto the property). It is the responsibility of the contractor and subcontractors to preserve those liens. If they don’t follow proper procedure, then they lose their rights to the lien.

Preserving the Lien

In Minnesota, according to Minn. Stat. 514.01 – .17, a contractor has a duty, within ten days after signing a contract with the owner, of notifying the owner, in writing, with letters in at least 10-point, bold print or capital letters, of two legal facts:

  1. that the lien exists; and
  2. that the owner has the right to pay subcontractors and material suppliers directly and deduct the amount from the contract price, or withhold the amounts due to them under certain circumstances.

If the contractor fails to do this, he loses his rights to the lien. If the owner fails to pay for the work, he must resort to a long, expensive civil suit. There are three exceptions to the notice requirement:

  1. when the contractor is the owner of the property;
  2. when the work is done on an apartment building of more than four dwelling units; or
  3. when the work is done on non-agricultural commercial property containing more than 5,000 square feet or an improvement that would add more than 5,000 square feet to an existing commercial property.

A subcontractor or material supplier has the duty to give notice to the owner, within 45 days after work first starts, but before the owner has paid the general contractor in full, of three legal facts:

  1. that subcontractors and material suppliers have their own liens, independent of the general contractor;
  2. that if they are not paid, by either the general contractor or owner, they may file a lien against the property; and
  3. that the owner has the right to pay them directly and deduct the amount from the contract price.

This notice must also contain a description of the type of services or materials to be provided and the estimated charges. The exact language required for both of these notices are contained in Minn. Stat. 514.011.

Wise contractors, subcontractors and material suppliers will provide notice immediately. They will also verify delivery of the notice by getting a signed, notarized affidavit. Most legal forms in use by contractors have affidavits already attached for convenience. Wise homeowners will request lien waivers from the contractors, subcontractors and material suppliers after they have paid in full.

Recording the Lien

Contractors, subcontractors and material suppliers have 120 days from the last day of work or the last day materials were supplied on a job to file a lien against the property. The last day of work is the day the project was substantially complete. The contractor cannot go back to the site and do extra work on the project solely for the purpose of extending the 120-day period. Kahle v. McClary, 96 N.W.2d 243 (Minn. 1959). In fact, the vast majority of litigation over mechanic’s liens is about when the project is substantially complete. Before contractors file a lien, they must provide the owner with pre-lien notice of their intention to file a lien if not paid. If no payment is made, they must record their lien with the county recorder. They must provide property address, legal description of the real estate, amount owing on the job, name of the owner, name of the party contracted with, the first and last dates of work performed on the job, and a statement that the statutory notice requirements were met. A wise contractor will keep a file on each contract they make, retaining proof that the notice requirements were met and proof of the first and last days of work.

Foreclosing on the Lien

The contractor, subcontractor or material supplier must foreclose on the lien within one year after the last day of work was done or materials were supplied. The contractor should involve an attorney at this point. An action for a Mechanic’s Lien foreclosure is similar to an action for mortgage foreclosure. If the contractor, subcontractor or materials supplier wins, the property will be sold at a Sheriff’s sale to satisfy the amounts owing. The action is easier and faster than a regular civil action because it allows for recovery of attorney’s fees and allows for an earlier court hearing. If the contractor has provided all the required notices, collected all their affidavits, and filed their statements all within the required time limits, then they will likely win judgment in their favor.

Protect Yourself from Liability

The industry hold dangers and risks for both homeowners and contractors. The best way for both to protect themselves from liability is to clearly communicate expectations, to have a detailed, thorough contract before work begins, and to keep a file of all notices, start dates, end dates, and waivers.

Written by Lucas Spaeth