Category | Briefing Papers
Mechanics’ liens are valuable tools that can be used to protect persons that provide materials or labor for the improvement of real property. However, this remedy is only available if you follow specific and time sensitive requirements. All too often, general contractors, subcontractors and suppliers of materials are forced to use other and more costly methods to collect monies owed due to their own failure or oversight to comply with the statutory requirements to enforce mechanics’ lien rights.
There are four basic steps to perfect and foreclose a mechanics’ lien. Adhering to these requirements on every project will save you time and frustration when payment becomes an issue.
These requirements must be followed as specified in Minnesota Statutes ch. 514. Failure to follow the statutory procedures will result in the mechanics’ lien being unenforceable.
An often ignored aspect of Minnesota’s mechanics’ lien statute is the pre-lien notice requirement. Pre-lien notices are intended to give certain residential owners notice of all parties providing labor and/or materials to their property as those parties commence their work. General contractors and subcontractor/suppliers have different pre-lien notice requirements. Unless one of the exceptions apply, failure to serve a pre-lien notice upon the owner invalidates a mechanics’ lien.
A. General Contractor Requirements
Anyone contracting directly with the owner for the improvement of real property, and who has or will contract with any subcontractors or material suppliers, must provide the owner with pre-lien notice. The notice must be contained within the written contract between the owner and the contractor. If there is no written contract, the notice must be drafted and delivered personally or by certified mail to the owner (or the owner’s authorized agent) within 10 days after the work or improvement is agreed upon.
The general contractor’s pre-lien notice must contain the following language, which is set forth in Minnesota Statute § 514.011(1):
(a) Any person or company supplying labor or materials for this improvement to your property may file a lien against your property if that person or company is not paid for the contribution.
(b) Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gives you timely notice.
The notice, whether included in a written contract or provided separately, must be in at least 10-point bold type, if printed, or in capital letters, if typewritten.
B. Subcontractors and Suppliers Requirements
Subcontractors and anyone else that contribute to the improvement of real property (other than someone contracting directly with the owner) must serve a pre-lien notice, either personally or by certified mail, on the owner (or the owner’s authorized agent) within 45 days after the subcontractor or supplier first furnished labor, skill or materials for the improvement.
The written notice must contain the following language, which is set forth in Minnesota Statute § 514.011(2).
This notice is to advise you of your rights under Minnesota law in connection with the improvement to your property.
Any person or company supplying labor or materials for this improvement may file a lien against your property if that person or company is not paid for the contributions.
We, _______ have been hired by your contractor, _______ to provide (type of service) or (type of material) for this improvement. To the best of our knowledge, we estimate our charges will be $__________.
If we are not paid by your contractor, we can file a claim against your property for the price of our services.
You have the right to pay us directly and deduct this amount from the contract price, or withhold the amount due from your contractor until 120 days after completion of the improvement unless your contractor gives you a lien waiver signed by us.
We may not file a lien if you paid your contractor in full before receiving this notice.
The notice must be in at least 10-point bold type if printed, or in capital letters if typewritten. As a matter of practice, subcontractors and suppliers should obtain the name and address of the owner from the general contractor when they sign their contracts
C. Exceptions to Pre-Lien Notice Requirements
In certain instances, pre-lien notice is not required. Generally speaking, pre-lien notices are not required when the principal use of the property is commercial and not residential. Pre-lien notice is not required for improvements made to property which is not in agricultural use and which is wholly or partially non-residential in use if the improvement:
1. provides or adds more than 5,000 total usable square feet of floor space; or
2. is an improvement where the existing property contains more than 5,000 total usable square feet or floor space; or
3. is an improvement to property which contains more than 5,000 square feet and does not involve the construction of the new building or an addition to an existing building.
Minnesota Statute ch. 514 lists all of the exceptions when pre-lien notice is not required. When in doubt, pre-lien notice should be provided, so that your statutory right to assert a mechanics’ lien is preserved.
Within 120 days of the last contribution to the property, you must file your mechanics’ lien statement. The statement must contain all of the information required by Minnesota Statute § 514.08. If the property is abstract property, the mechanics’ lien statement must be recorded in the local county recorder’s office, where the property is located. If it is Torrens property, the statement must be recorded with the county registrar of titles. The lien statement must also be served, either personally or by certified mail, upon the owner, the owner’s authorized agent, or the person who entered into the contract with the contractor.
The lien statement must be made at the direction of the claimant and be sworn under oath. If the amount of the mechanics’ lien is intentionally overstated, the entire lien becomes unenforceable, not just the amount of the overstatement. Thus, it is important to only lien the actual amount owed and to double check your calculations.
Within one year of the date of the last item of labor, skill or material furnished to improve the property, foreclosure of the lien must be commenced. This is done by filing an action in the district court in the county in which the improved property is located and by filing a notice of Lis Pendens with the county recorder or the Registrar of Titles depending whether the improved property is abstract or torrens. Thereafter, the summons is served on all parties claiming an interest in the real property, such as the owner, other mechanics’ lien claimants and a bank mortgagee. Oddly, only the summons needs to be served. The complaint is generally served as a courtesy. An otherwise valid mechanics’ lien will expire if the action is not commenced within the one year time period.
The notice of Lis Pendens puts future purchasers, mortgagees, and others claiming an interest in the subject property on notice of the mechanics’ lien and the foreclosure action. If the notice of Lis Pendens is not filed within one year from the date of the last item furnished, the lien cannot be enforced against a bona fide purchaser or mortgagee of the property.
If the foreclosure action proceeds to trial and a verdict is rendered in favor of the lien claimant, the lien claimant must then request a foreclosure sale. At the sale, the property will be sold and the proceeds from the sale will be used to pay off the interest holders in the property based upon their priority of interest.
Mechanics’ liens are a valuable remedy. However, you must be aware that the priority of your lien compared to other interests will be determined in the foreclosure sale. Obtaining a mechanics’ lien does not always guarantee payment. For example, if the amount of your mechanics’ lien is relatively small, and there is a large mortgage on the property recorded before you began your work, the mortgagee will be paid first from any potential sale of the property and there may be little left to satisfy mechanics’ liens.
The mechanics’ lien statute was recently amended to make it clear that mechanics’ liens are not an exclusive remedy and that if a party wishes, it may proceed with other causes of action, i.e. breach of contract or unjust enrichment, to obtain payment. While these options are more costly and sometimes more time consuming, they are an option if a mechanics’ lien will not produce the needed result, and it is more cost-effective to pursue all remedies simultaneously in any event.
Mechanics’ liens are powerful tools that can be used to obtain long awaited payments, however, you must be aware of the statutory requirements to enforce such liens. Be pro-active in your business and protect your mechanics’ liens rights by providing your pre-lien notices and filing and serving your lien statements on time.
F W & H CAN DRAFT MECHANICS’ LIEN MATERIALS SPECIFICALLY SUITED TO FIT YOUR NEEDS.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T