Wednesday, December 30, 2009

Lien Law Online eLert for 12/29/2009 - Michigan

December 29, 2009

Michigan Homeowner Construction Lien Recovery Fund Runs out of Money

In a sign of the times, the Michigan Homeowner Construction Lien Recovery Fund is broke, and there is currently no way to replenish its coffers.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Part 2 of the Michigan Construction Lien Act (MCL 570.1101, et seq) to provide protection when the homeowner, has in good faith, paid their licensed contractor for materials and labor and the contractor failed to compensate materialmen, subcontractors, and/or laborers.

The funding problem for the Fund stems from PA 497 of 2006, an amendment to the Michigan Construction Lien Act, which repealed Section 201(2) of the Act effective January 3, 2007. This amendment, reportedly the product of a legislative compromise, eliminated the ability of the Fund to make a $50 special assessment when the Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

Beginning in 2006 and continuing through July, 2009, the Fund experienced an unprecedented increase in claims. This increase closely mirrored the collapse of the housing market. The Fund is currently involved in over 250 pending lawsuits involving more than 350 claims against it that total more than $18 million. In 2009, Judgments against the Fund have averaged $123,800 per month. By mid-October, there was only $524,000 remaining in Fund coffers.

On October 21, 2009, the Fund sought to consolidate all 250 of the pending lawsuits into one proceeding in Macomb County and proposed a pro rata distribution of the remaining money among all the lien claimants. The result would be pennies on the dollar. The Fund’s (interpleader) motion was heard by Judge James Biernat, Sr. on November 2, 2009, but denied several weeks later in a written opinion.

As things stand now, and absent legislative intervention, the Fund will run dry within a few months. This will leave unpaid subcontractors and suppliers to fight things out with Homeowners, who will find themselves stuck in the middle of dispute with their builder and at significant risk of paying twice for improvements to their home.

For more information, contact Peter Cavanaugh Contributing Author or visit his website --

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Thursday, December 10, 2009

Lien Law Online eLert for 12/8/2009 - New Jersey

December 8, 2009

On December 3, 2009, New Jersey Assemblyman Patrick J. Diegnan, Jr. introduced a bill that dramatically revises the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1 et seq. in accordance with a March 2009 proposal by the New Jersey Law Revision Commission. Assemb. 4319, 213th Leg. (N.J. 2009).

Specifically, according to the bill’s Statement, the proposed legislation revises the Construction Lien Law, which was enacted in 1993, by:

• clarifying and adding certain defined terms, especially pertaining to the meaning of “residential,” to conform to actual construction industry usage;

• clarifying (and in some cases rearranging) procedures for the filing and amending of the lien claim and for the calculation, distribution and enforcement of the lien fund;

• amplifying provisions for discharging a satisfied lien claim;

• adopting court holdings regarding the concepts of contract price, lien fund and lien claim;

• further defining the arbitrator’s role in residential construction contract lien arbitrations;

• modifying and adding time limits for filing and perfecting residential construction contract lien claims;

• specifying the application of lien claims to community association property; and

• addressing certain ambiguities as to mortgage priorities with respect to lien claims.

The bill also revises some statutory language simply to make it easier for participants in the construction industry to use the law. The bill enhances application of the current statute and clarifies the procedures to be followed in order to process and perfect a construction lien claim.

While the bill may not move prior to the end of this legislative session, it is likely that it will be reintroduced in the next session and move as early as mid-January 2010. We will follow the progress of the proposed legislation and provide updates as new information becomes available.

Dennis A. Estis, Esquire Contributing Author

Steven Nudelman, Esquire Contributing Author

Greenbaum, Rowe, Smith & Davis LLP

Thursday, November 19, 2009

Lien Law Online eLert for 11/19/2009 - Maine

November 19, 2009

The contributing author on the Maine chapter of Lienlaw Online has made some minor changes and added additional, timely, information regarding Bond Claims on State Owned Projects. For convenience, the added information regarding Bond Claims is reprinted below:

Bond Claims on State Owned Projects

Projects involving “the construction, alteration or repair of any public building or other public improvement or public work, including highways” are covered by the Maine Public Works Surety Bond Law.[23] This law applies to any contracts exceeding $125,000 for the construction, alteration or repair of a public building. Maine’s mechanic’s lien law does not cover projects on state owned property; the unpaid subcontractor or supplier’s recourse is on a payment bond issued on the project.

The Surety Bond statute requires that the bond provided on a public project contain certain minimum requirements. Specifically, the bond has to protect those who have a direct contract with the general contractor and also those who have a direct contract with a subcontractor of the general contractor.[24] In other words, the payment bond provides coverage for two tiers: subcontractors and sub-subcontractors.

At the discretion of the state, Maine also allows an irrevocable reasonable letter of credit to be posted in lieu of a payment bond. The statute contains specific requirements for the financial institution issuing the letter of credit, including the fact that the institution must be federally insured and have a bond rating of A3 by Moody’s or A− by Standard and Poor.[25]

A supplier (or subcontractor) to a subcontractor of the general contractor has specific notification requirements which must be followed. Those without a direct contract with the general contractor must provide written notice to the general contractor within 90 days of the date on which the last labor or material was furnished and suits on all bond claims must be filed within one year.[26] The notice must state the amount claimed and the name of the party to whom the material was furnished or labor supplied. This notice needs to be sent by registered or certified mail, postage pre-paid, with an envelope addressed to the contractor any place the contractor maintains a residence or conducts business. Failure to comply with the requirement of notice by registered or certified mail may not invalidate a bond claim as long as the general contractor has received actual written notice of the claim. [27]

All changes have been uploaded on the website for immediate review.

John A. Hobson, Esquire (Contributing Author)

Perkins Thompson, P.A.

Monday, November 16, 2009

Lien Law Online eLert for 11/13/2009 - California

November 13, 2009

Upcoming Changes in California Lien Law

Several subscribers have sent inquiries regarding changes in California's lien law which were recently passed by the CA legislature. In fact, changes are forthcoming, but they will not take effect until January 1, 2011.

There will be two changes in the lien law statutes in California. Under the first change, after January 2011, lien claimants will need to serve any mechanic's lien they record on the project owner along with a Notice of Mechanic's Lien to perfect their lien rights. The specific terms to be used in the Notice of Mechanic's Lien will be set forth in a revised Section 3084 of the California Civil Code. The specific wording, which must be used for the Notice of Mechanic's Lien, will be updated on the website prior to the effective date.

Under the second change, a lien claimant will need to record a Notice of Lis Pendens with the County Recorder's Office when filing a Lien Forclosure action after January 1, 2011. Specifically, the Notice of Lis Pendens will need to be recorded within 20 days after filing the Lien Foreclosure action. This change will be accomplished through a revised Section 3084 of the California Civil Code 3146.

The foregoing changes will be incorporated into the California chapter when we get closer to the changes going into effect.

Deborah S. Ballati, Esquire, Contributing Author
B. Scott Douglass, Esquire, Contributing Author
Farella Braun & Martel, LLP

Thursday, October 29, 2009

Lien Law Online eLert for 10/28/09 - New Jersey

October 28, 2009

The Contributing Author for New Jersey has updated the chapter and added references to notable 2009 case decisions. One case in particular, Schadrack v. K.P. Burke Builder, LLC, contains important decisions regarding the construction lien arbitration process.
Updates regarding the changes are now online.

Contributing Authors:
Dennis A. Estis, Esquire
Steven Nudelman, Esquire
Greenbaum, Rowe, Smith & Davis LLP

Thursday, September 17, 2009

Lien Law Online eLert for 9/17/2009 - Pennsylvania

September 16, 2009

The Pennsylvania legislature has passed Act 34 (Senate Bill 563) which was recently signed into law by Governor Rendell. The amendments to Pennsylvania’s lien statute will go into effect on October 10, 2009.

The changes are significant in that they, once again, allow up-front waivers of lien rights from contractors and subcontractors on “residential properties” even before any work is done or as a condition of the contract. It was in 2007 that the legislature had decided that such advance waivers were unenforceable and against public policy-but allowed certain, limited exceptions for residential projects.

With the 2009 changes, the legislature has “taken a step back” and will allow advance lien waivers on “residential property” which is defined as “property on which there is or will be constructed a residential building not more than three stories in height, not including any basement level regardless of whether any portion of that basement is at grade level, or which is zoned or otherwise approved for residential development on which there is or will be constructed a residential building not more than three stories in height, not including any basement level, regardless of whether any portion of the basement is at grade level, planned residential development or agricultural use, or for which a residential subdivision or land development plan has or planned residential development plan has received preliminary, tentative or final approval on which there is or will be constructed a residential building not more than three stories in height, not including any basement level, regardless of whether any portion of that basement is at grade level, pursuant to the act of July 31, 1969 (P.L. 805, No. 247), known as the “Pennsylvania Municipalities Planning Code.”

The 2009 changes also removed the $1,000,000 limitation on the residential exception. Certainly, these changes could place contractors, subcontractors, sub-subcontractors and material suppliers at greater risk of nonpayment for services rendered on residential property projects by eliminating lien rights.

The changes go into effect on October 10, 2009. The Pennsylvania chapter will be updated prior to the effective date.

Carl G. Roberts, Esquire Contributing Author
Ballard Spahr LLP

Thursday, August 27, 2009

Lien Law Online eLert for 8/26/2009 - North Carolina

August 25, 2009

A North Carolina Bankruptcy Court recently ruled that a subcontractor’s service of a notice of claim of lien on funds after the date the contractor had filed a petition in bankruptcy violates the automatic stay. Thus, held the court, the lien on funds was void. Further, because under North Carolina law a subcontractor may file a lien on real property only upon the service of a valid notice of claim of lien on funds, the subcontractor’s lien on real property was ruled void as well. This trial court opinion has been appealed.

In re: Harrelson Utilities, Inc., Case No. 09-02815-8-ATS, United States Bankruptcy Court, Eastern District of North Carolina, Raleigh Division July 30, 2009), recognized that whether a post-petition claim of lien in North Carolina falls within the exceptions to the automatic stay found in Bankruptcy Code § 362(b)(3) depends on a question of state law. In particular, if under state law the subcontractor has an interest in the funds prior to perfection (i.e. prior to service of notice of lien), the exception applies and the lien is valid. However, if under state law the lien right is created by the giving of the notice, the exception does not apply and the lien is void.

In reaching its decision, the court distinguished between North Carolina liens on real property and liens on funds, ruling that the statutory provision that a lien on real property “relates back” to the time of first furnishing of labor or materials, creates an interest in the realty prior to perfection, whereas a lien on funds, the court found, was afforded no such benefit. No subcontractor interest in the fund is created until service and receipt of notice. Curiously, the court did not find NCGS § 44A-22 provides the priority necessary to enforce a post-petition lien on funds. Section 44A-22 provides that a lien on funds enjoys priority over all other interests or claims “theretofore of thereafter created.”

While a boon to owners seeking to avoid all liens, this distinction between real property and fund liens provides no solace for North Carolina subcontractors. Under state law subcontractors may exercise only a subrogated right of the contractor to lien real property and, further, must serve a valid lien on funds as a precondition to perfecting that subrogated right. Here, where a contractor’s bankruptcy cuts off an opportunity to perfect a lien on funds, the subcontractor is additionally precluded from perfecting a lien on real property.

The In re: Harrelson ruling has generated spirited debate in the North Carolina construction industry and construction law bar. Industry advocates warn that the ruling, if sustained on appeal, will require subcontractors to serve liens on funds as soon as they first supply labor or materials, with predictable negative results on project cash flow. Others observe that some subcontractors may receive word that the contractor is experiencing financial trouble and, thus informed, proceed to serve liens on funds to the detriment of subcontractors who do not have that information or who do not receive it until alerted to a contractor bankruptcy. This result, observers argue, is inconsistent with the effect and intent of North Carolina lien law to require all subcontractors to share pro rata where a fund is inadequate to satisfy all claims. Further, some observers say liens on funds should not be afforded less dignity because actual receipt of a formal notice of lien on funds is far better notice than the first provision of labor or materials. Often an owner has no practical means of knowing who is supplying the subcontracted labor or materials to the contractor. Some express concern that this ruling could be logically extended to void liens on real property as well.

Steven D. Hedges, Esquire Contributing Author
Nexsen Pruet, PLLC

Lien Law Online eLert for 8/20/09 - North Dakota

August 20, 2009

For the first time in years, the North Dakota legislature has made a number of substantive changes to the mechanic's lien statutes. Effective August 1, 2009, the following changes took place in North Dakota:

1. Very significantly, the legislature added a new section providing that an owner that successfully contests the validity or accuracy of a construction lien by an action in district court must be awarded the full amount of all costs and reasonable fees incurred by the owner. This puts a huge burden on anyone claiming a mechanics lien.

2. The name of a mechanic's lien was changed to "construction" lien.

3. The legislature repealed N.D.C.C. Sec. 35-27-05 dealing with the filing of a notice of intent to claim a mechanic's lien, and the requirements thereof; instead the legislature added a sentence to N.D.C.C. Sec. 35-27-02 requiring that written notice that a lien will be claimed must be given to the owner of the real estate by certified mail at least ten days before the recording of the "construction" lien.

4. The legislature changed the provisions of N.D.C.C. Sec. 35-27-04 which dealt with mortgages given in good faith for the purpose of providing funds for payment of materials or labor for the improvement. Previously, a lien could be obtained, prior to such mortgages, by recording a notice of intent to file a mechanics lien prior to the recording of the mortgage. This generally did not happen because few people filed a notice of intent at the beginning of the project, and before the financing was in place; however, it was an option. The change is that the only way to obtain such priority now is to file the actual "construction" lien. Since the lien cannot be filed until an amount is due, from a practical standpoint, it is unlikely that a claimant could file a construction lien ahead of these mortgages.

5. The legislature repealed N.D.C.C. Sections 35-27-11 and 34-27-12. These set out the procedural requirements for the lien and the requirements for the recorder as far as indexing. However, N.D.C.C. 35-27-13, which provided that the lien is to be perfected by recording within 90 days was amended by stating the lien must include the dates of the first and last contribution, and the person with which the claimant contracted. (This statute already included that the lien had to describe the property and state the amount due, and that the person had to comply with all the provisions of the chapter. The practical effect is that the person claiming the lien must still keep an itemized separate account, separate and apart from all other accounts in order to comply with N.D.C.C. 35-27-10. The construction lien must include (a) the legal description of the property,(b) the amount due, (c)the dates of first and last contribution, (d) the name of the person with whom the claimant contracted. I recommend it also include (e) the name of the person in possession of the land with a statement that written notice that a lien would be claimed was given to the owner by certified mail at least ten days before recording of the lien (this notice would no longer ever be recorded) and (f) the date of the contract. In other words, the earlier form should still be the form to use after modifying "mechanics lien" to "construction lien", and modifying the language regarding the giving of the notice of intent, and adding the dates of the first and last contribution.

6. Previously the failure to file the lien within 90 days did not defeat the lien against purchasers or encumbrancers in good faith, for value, whose rights accrued after 90 days and before the lien was filed. This has now been changed to state that the failure to file does not defeat the lien as against these parties if the rights accrue before the filing of the lien. The effect of this is that if someone buys the property within the 90 day period the lien will be lost if the lien is not filed within the 90 day period. Before, if someone bought on, say, day 30 and a laborer had improved the property, the laborer could still get a lien against the buyer even if the lien was not filed within 90 days.

7. Finally, the legislature removed the class A misdemeanor criminal penalty for the filing of a lien that includes classes of materials not subject to a mechanic's lien.
The North Dakota chapter will be updated soon to reflect these changes.

Lyle W. Kirmis, Esquire Contributing Author
Zuger Kirmis & Smith

Thursday, August 13, 2009

Revisions to Iowa Lien Law Under Consideration - 8/12/09

August 12, 2009

The Iowa legislature is considering the passage of HSB 173/ SSB 1215. It would revise Iowa Code Chapter 572, Mechanic's Lien Law, to require contractors and material providers to give public notice of their rights in order to perfect a mechanic's lien. Notice will be posted on a State Construction Registry.

The bill would also expand the right to recover attorney fees to any prevailing plaintiff and allows any prevailing defendant to recover attorney fees, not just those defending claims involving owner-occupied properties. Commercial construction would be exempt from the central registry requirement.

The bill has been assigned to subcommittee in House and Senate Judiciary Committees and will carry over to the 2010 session.

Monday, July 27, 2009

Lien Law Online eLerts 7/27/09 - Arkansas


Arkansas recently passed HB 1594, now Act 454, which amends Arkansas’s mechanic’s and materialmen’s lien statutes. The amendments create more certainty that property owners, particularly residential property owners, will actually receive required statutory lien notices, will provide an enforcement mechanism for contractors failing to provide homeowners with the required pre-construction notice, and provide a quick means for frivolous, improperly filed liens to be removed as a cloud on title. More specifically, the Act:

Clarifies that suppliers of drainage tiles, soil pipes, architects, engineers, surveyors, appraisers, landscapers, abstractors, and title insurance agents must follow the same notice requirements before filing a lien as material suppliers, subcontractors, and general contractors.

Provides that service by mail of the required construction notices is “complete when mailed,” and that service of such notices may also be satisfied by written third-party (e.g. UPS, FedEx) verification of delivery at any place where the owner maintains an office, conducts business, or resides.

Bars a residential contractor from bringing an action to enforce any provision of a residential contract if the contractor fails to give the required pre-construction notice to the homeowner.
Provides subcontractors and material suppliers a way to perfect a lien on a residential project if a residential contractor fails to provide the required pre-construction notice to the homeowner.
Clarifies that a subcontractor is required to provide a 75-day notice in order to perfect a lien on a commercial project.

Allows an owner, material supplier, subcontractor, or anyone interested as mortgagee or trustee in the real estate upon which improvement have been made to file suit in circuit court against a contractor or subcontractor who refuses to provide a correct list of all the parties furnishing materials or labor and the amount owed to each, or who falsely certifies that the owner has received the required preliminary construction notices. The prevailing party will receive a judgment for any damages proximately caused by the violation, costs of the action, and reasonable attorney’s fees.

Changes the amount to “bond off a lien” to the amount of the lien claim, as opposed to twice the amount of the lien claim.

Provides a procedure whereby an owner or contractor may petition the court for an expedited hearing to decide whether a lien claimant properly complied with the notice requirements.

The changes will go into effect on August 1, 2009.

Contributing Author: Allen C. Dobson Esq.
Cross, Gunter, Witherspoon & Galchus, P.C.

Wednesday, July 22, 2009

Lien Law Online eLert 6/24/2009 - Colorado

Colorado has passed legislation that affects ALL Lien Waivers entered into as of July 1, 2009. The new law modifies two (2) sections of the Colorado Revised Statutes (CRS).

The first is a section in the criminal code entitled Unlawful Activity Concerning the Selling of Land, CRS § 18-5-302. This statute deals with certain fraudulent conduct and representations made in the context of a sale of land or representations concerning the ownership of land. To this statute has now been added a new subsection (3) that imposes criminal sanctions for the failure to timely pay funds received from a construction loan where a lien waiver is signed. The new statutory language states as follows:

(3) a person who signs a lien waiver or a construction loan under section 38-22-119, CRS, and knowingly fails to timely pay any debts resulting from a construction agreement covered by the waiver commits a class 1 misdemeanor, unless there is a bona fide dispute as to the existence or amount of the debt.

The term “bona fide” generally means “real, actual, genuine and not feigned.” (Black’s Law Dictionary) Therefore, one should assume that a real and not a contrived dispute would be necessary to justify any failure to pay funds to lower-tier subcontractors or suppliers.
A class 1 misdemeanor is a crime in Colorado punishable by imprisonment of six to eighteen months, or fines of $500 to $5,000, or both.

The bill also amends the civil statute dealing with waivers in the context of mechanics liens by adding a statutory section to the current statute entitled “Agreement to Waive-Effect.” CRS § 38-22-119. This new statutory section reads as follows:

(2) An agreement to waive lien rights shall contain a statement, by the person waiving lien rights, providing in substance that all debts owed to any third party by the person waiving the lien rights and relating to the goods or services covered by the waiver of lien rights have been paid or will be timely paid.

By use of the words “providing in substance,” the statute does not dictate the exact wording required in a lien waiver, but does clearly state that words to that effect must be contained in lien waiver documents. Thus, after this statute takes effect, construction lien waivers must include language that essentially says that, “all debts owed to any third party by the person waiving the lien rights and relating to the goods or services covered by the waiver of lien rights have been paid or will be timely paid.”

The new statute has been signed by the Governor and takes effect on July 1, 2009. After that date all construction lien waivers must comply with this new statutory requirement. In addition, the failure to properly disburse funds received from a construction loan may lead to criminal action against the offending contractor or subcontractor.

Gilbert R. Egle, Esquire Contributing Author
Preeo Silverman Green & Egle, P.C.

Lien Law Online eLert 5/15/2009 - Utah

The Utah general assembly recently enacted important changes to the state’s lien statutes. The changes modify (1) the definition of final completion of an original contract and project; (2) the subcontractor preliminary notice requirements; (3) the notice of commencement filing requirements; and (4) the DOPL standardized building permit numbering system. In addition, the changes prohibit a compliance agency from deviating from the DOPL standardized building permit numbering system.

The Utah chapter has been updated to reflect these changes.

Brian J. Babcock, Esquire (Contributing Author)
Babcock, Scott & Babcock, P.C.

Lien Law Online eLert 5/4/2009 - Tennessee

Important Case Guidance - Tennessee

A decision handed down by the Tennessee Court of Appeals in Williamson County Ready Mix, Inc. v. Pulte Homes Tennessee Limited Partnership, No. M2007-COA-R3-CV, at *5-*7 (Tenn. Ct. App. Dec. 15, 2008); T.C.A. 66-11-112; T.C.A. 66-11-118(b) has clarified what a material supplier must do to perfect a lien on a project where multiple units are involved. The court determined that “where a materialman provides materials used in the construction of multiple townhome units, the lienor is required to apportion its lien and perfect a lien for each townhome unit; a ’blanket lien’ on a townhome building is not effective and does not give priority against subsequent purchasers and encumbrances of separate townhome units.”

Cameron S. Hill, Esq. (Contributing Author)

Lien Law Online eLert 4/2/2009 - New Mexico

The New Mexico House of Representatives has requested that the New Mexico legislative council assemble a task force to study and examine issues and concerns regarding the ease of placing liens upon homeowners' properties and how that has led to abuse by some contractors and subcontractors and the Stop Notice Act in the process of applying a mechanic's lien on a homeowner's property and the homeowner's ability to defend against a wrongful lien. The House of Representatives has requested that the task force report to the appropriate interim legislative committee by October 2009.

Carl A. Calvert, Esquire
Calvert Menicucci, P.C.

Lien Law Online e-lert 4/1/2009 - Georgia

Effective March 31st, significant changes in Georgia's Lien Statute went into effect. Statutory forms have been revised. Various lien law deadlines have been altered. Notice, filing and service requirements have been changed.

It is extremely important that you take note of the changes and use the new forms and filing information from this point forward. The Georgia chapter and related forms were updated on the site at midnight March 30th.

Frank E. Riggs, Jr., Esquire
Troutman Sanders, LLP