Thursday, August 27, 2009

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 The legislature repealed N.D.C.C. Sec. 35-27-05 dealing with the filing of a notice of intent to claim a mechanic's lien, and the requirements thereof; instead the legislature added a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 The legislature repealed N.D.C.C. Sections 35-27-11 and 34-27-12.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

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