Wednesday, October 26, 2011

Lien Law Online eLert for 10/24/2011 - North Carolina

October 24, 2011

Effective October 1, 2011 reciprocal attorney’s fee provisions are enforceable in all NC commercial contracts. That would include ordinary construction contracts. It would also include ordinary commercial contracts in addition to the narrow category of “written evidence of indebtedness” (i.e., promissory notes) for which attorney’s fee provisions have been statutorily enforceable for years.

There are many differences of opinion about contractual attorney’s fee clauses and whether they are desirable. Legally, however, in NC where enforcement was desired, it was most likely unavailable because NC does not enforce a mere contractual attorney’s fee provision without underlying statutory authority. Arguments that ordinary construction or commercial contracts fell within existing statutory authority usually failed. This new statute, attached, provides that authority.

It remains to be seen whether or not attorney fees that are contractually enforceable can be included in a lien.

Steven D. Hedges, Esquire

Sparrow Wolf & Dennis, P.A.

Tuesday, September 13, 2011

Lien Law Online eLert for 9/1/2011 - Texas

September 1, 2011

This is a reminder that the significant changes in Texas's lien law recently enacted by the Legislature GOES INTO EFFECT TODAY, SEPTEMBER 1, 2011.

Details of the changes were set out in an e-Lert dated July 28, 2011. The e-Lert can be reviewed by visiting LienlawOnline under Industry News.

Gregory A. Harwell, Esquire (Contributing Author)

Gardere Wynne Sewell, L.L.P

Monday, August 1, 2011

Lien Law Online eLert for 7/28/2011 - Texas

July 28, 2011

The Texas Legislature has made the following important changes:

Retainage Notice Requirements—HB 1390

The Legislature made significant changes to the means and timing to record a lien to secure payment of contractual retainage. Initially, prior to the passage of HB 1390, there were two, distinct types of retainage recognized under Texas law: (i) contractual retainage in prime contracts and subcontracts and (ii) a statutory opportunity for an owner to withhold 10% of the prime contract amount and create a “drop dead” date to file a lien. If this statutory retainage was withheld and no notices of indebtedness were sent from a claimant to an owner, an owner could release the remaining 10% on the 31st date after completion, relatively secure in knowing that it would not be liable to lien claims filed thereafter. These two, separate retainage concepts had separate provisions for notice and separate deadlines. Now, these concepts have been comingled.

Subcontractors and suppliers have two means to preserve the right to claim a lien for unpaid, contractual retainage. First, they can send notice letters as contractual retainage is withheld from their periodic draws. This process has not been changed. Second, they can now wait to the conclusion of their work scope and send notice of a retainage provision within 30 days of the completion or termination of their subcontract. However, the statutory change does not require the lien claimant to advise the owner of the amount of any contractual retainage, it merely requires notice that a subcontractual retainage obligation exists.

If timely notice is provided to an owner that a subcontract calls for retainage (timely meaning within 30 days after the subcontracted work is completed), the claimant can later file a lien to create a direct liability against an owner. The deadline to file the lien is a moving target, but generally ranges from 40 days after a notice of completion or a notice of termination is recorded by the owner on the entire project, to 4 months after completion of the entire project if no notices are recorded. The new HB 1390 also allows an owner to accelerate this lien-filing obligation by allowing an owner to send a written demand that the claimant file its lien (putting the claimant on a 30-day deadline to file). Unfortunately, the statutory amendment now comingles the notion of contractual retainage, statutory “safe harbor” retainage, and personal liability to an owner for debts – something that may require future legislative clarification or court interpretation to resolve.

Finally, the amendment now provides that if subcontractors have requested information of an owner during the course of a project (essentially information on completion, termination, or legal descriptions of the property), and the owner fails to provide the information in accordance with the statute, the deadline to file a lien to secure payment of contractual retainage reverts to 4 months after completion of the entire project.

The new retainage notice requirements will take effect on September 1, 2011.

HB 1456—Standardized Statutory Lien Waiver Forms

House Bill 1456 had two significant changes to existing Texas law. Initially, it prohibited the use of contractual waivers of lien rights for commercial construction projects. Further, it mandated the use of uniform statutory lien waiver forms, for both conditional and unconditional lien waivers. These are the forms to be used during the payment process on all construction projects in Texas. The residential construction industry can be exempted from the prohibition on contractual waivers of lien rights.

While the use of these standard, statutorily-worded lien waiver and release forms may reduce litigation and payment delays in the construction process, the primary goal of the statute was to invalidate contractual lien waivers and to preserve the rights of subcontractors and suppliers to file liens in the event of a failure of payment. If the lien waiver and release is not drafted and executed in a form that “substantially complies” with the language found in House Bill 1456, then it is not enforceable and does not create an estoppel or impairment of a lien or payment bond claim. However, if a subcontractor or supplier has actually been paid, a deficiency in a form would be irrelevant, as there would be no outstanding indebtedness for which a lien would be filed. In addition, this legislation prohibits a person from requiring a claimant to execute an unconditional waiver and release for a progress payment or final payment amount unless the claimant or potential claimant actually received payment in that amount in good and sufficient funds. The requirement for the use of the uniform statutory lien waiver and release language takes effect on January 1, 2012.

Mandatory Attorney’s Fees on Suit to Foreclose a Lien—SB 539

Prior to the enactment of Senate Bill 539, courts had discretion to determine whether to award costs and attorney’s fees to a successful party in a suit to foreclose on a lien or to enforce a claim against a construction-related bond. Senate Bill 539 amended the Property Code to make the award of reasonable legal fees mandatory for a successful lien claimant.

Gregory A. Harwell, Esquire (Contributing Author)

Gardere Wynne Sewell, L.L.P

Monday, June 27, 2011

Lien Law Online eLert for 6/23/2011 - Massachusetts

June 22, 2011

Massachusetts passed a law amending the mechanic’s lien statute, which takes effect on July 1, 2011, and provides architects, landscape architects, professional engineers, licensed site professionals and land surveyors (collectively referred to below as “design professionals”) who are licensed or registered in Massachusetts with the right to obtain mechanics liens for the value of professional services. The amendments to the law apply to liens for professional services, as defined by the statute, for which any person has filed or recorded a notice of contract on an interest in real property on or after the effective date of the amendments. The amendments however do not apply to any mortgage filed or recorded before the effective date of the amendments. Prior to the new law, most architectural and engineering services were not afforded mechanic lien protection.

The following is a brief summary of the steps necessary for design professionals to obtain a lien:

(1) Have a written contract with the owner, lessee, or any one operating with the consent of the owner or lessee.

(2) Execute a Notice of Contract in the statutory form (Mass. Gen. Laws Chapter 254, § 2C) and file or record it in the registry of deeds for the county or district where the land is located no later than the earliest of 60 days after filing or recording the Notice of Substantial Completion (Mass. Gen. Laws Chapter 254, § 2A) or 90 days after the 1st tier design professionals or anyone performing professional services under him, last performed such services.

(3) File or record a Statement of Account within 30 days after the last day that a Notice of Contract may be filed or recorded.

(4) File a civil action with a verified complaint to enforce the lien within 90 days after the filing or recording of the Statement of Account. An attested copy of the complaint must be filed and recorded in the registry of deeds for the county or district where the land is located within 30 days of the commencement of the action.

There are special requirements applicable to 2nd tier design professionals working for 1st tier design professionals, including:

(1) A 2nd tier design professionals working for a 1st tier design professionals who has the right to file a lien, may file its own lien if it has a written contract and if the owner approves the lower tier design professionals subcontract in writing.

(2) The 2nd tier design professionals must follow the general process outlined above except that it must use a different statutory form for the Notice of Contract (Mass. Gen. Laws Chapter 254, § 2D) and give actual notice of the filing to the owner.

(3) The lien is limited to the amount owed by the owner to the 1st tier design professionals as of the time the 2nd tier design professionals records its Notice of Contract.

There are also special requirements for mechanics liens of lower tier design professionals working for contractors or subcontractors:

(1) The lower tier design professionals working for a general contractor or subcontractor may file a lien if it has a written contract for that work.

(2) The lower tier design professionals must follow the same process outlined above but with the Notice of Contract form provided in Mass. Gen. Laws Chapter 254, §4. The notice must be filed by the earliest of (i) 60 days after the filing of the statutory Notice of Substantial Completion; (ii) 90 days after the filing of the Notice of Termination or (iii) 90 days after the last furnishing of materials by anyone working under the general contractor. The owner must receive actual notice of the filing of the Notice of Contract.

(3) The amount of the lien is limited to the amount owed by the owner to the contactor as of the time the design professionals record its Notice of Contract.

(4) Additionally design professionals who do not have direct contracts with general contractors must serve a Notice of Identification in the statutory form within 30 days of commencing work or the amount of the lien will be limited.

Notably, the statute provides a lower priority to design professionals’ liens than contractor, subcontractor, supplier, and labor liens. The restriction does not apply to liens of design professionals hired by contractors or subcontractors.

Terri L. Pastori, Esquire, (Contributing Author)

Robert M. McCall, Esquire, (Contributing Author)

Peabody & Arnold LLP,

Tuesday, June 21, 2011

Lien Law Online eLert for 6/21/2011 - North Carolina

June 21, 2011

The North Carolina Bar Association submitted a proposed bill for introduction in the 2011 General Assembly session, developed by the NCBA’s Construction Section, and providing by revision and amendment of the statutory mechanics lien and bond laws for changes including the following:

• A notice of commencement, as currently used in several other states, to be filed by the project owner and serving to eliminate priority claims (so-called “hidden liens”) predating project commencement

• A notice to owner, to be served by subcontractors within 30 days of first furnishing as a prerequisite to perfecting a claim of lien and to avoid the effect of recent bankruptcy court decisions in NC disallowing post-petition perfection of liens

• Statutory and legally sufficient forms for partial and final lien waivers, avoiding the effect of a recent NC trial division decision construing a partial lien waiver to be a final lien waiver

• Retention of subrogated and direct-liability claims of lien against owners and retaining the claim of lien on funds

• A requirement that second and lower tiered bond claimants on public jobs provide the general contractor with a notice of subcontract as a prerequisite to a bond claim and to protect the GC against double payment liability

The bill was introduced as House Bill 489. After initial amendment, HB 489 was converted in its third version from the set of amendments and new provisions submitted by the NCBA into an act styled “An Act Authorizing The Legislative Research Commission To Study North Carolina's Mechanics' Lien And Bond Laws.” This study commission version was passed by the House and passed a first reading by the Senate. This is the current status of the proposed legislation. With the close of the current legislative session, further action on this bill is not anticipated this year.

Steven D. Hedges, Esquire (Contributing Author)

Sparrow Wolf & Dennis, P.A.

Wednesday, May 18, 2011

Lien Law Online eLert for 5/18/2011 - Utah

May 18, 2011

During the 2011 Utah State Legislative session, the legislature made some significant changes to the Utah Mechanic’s Lien laws. There were two principal bills dealing with these changes: HB 115 “Mechanics’ Liens Amendments” and HB 260 “Mechanic’s Lien Revisions”. House Bill 115 has an effective date of May 2011. House Bill 260 has an effective date of August 2011. The following is a brief summary of the changes. The Lienlaw Online chapter has been updated with the changes associated with HB 115 and will be updated in August to reflect the changes associated with HB 260.

HB 115 – Mechanics’ Lien Amendments

• Provides for a new lien for “preconstruction services.” Preconstruction services include “plan or design” services provided before construction of the improvement commences. Compensation must be separate and apart from construction services compensation.

• Preconstruction services are deemed completed when the construction commences (likely when the first preliminary notice is filed with the State Construction Registry (“SCR”)).

• Requires all persons or entities to file a Notice of Retention (“retention” referring to one being retained to perform work and not to be confused with monetary retainage) in order to preserve preconstruction lien rights.

• Notice of Retention is required to be filed within 20 days of commencement of the claimant’s work.

• Information required in Notice of Retention: contact information of service provider; description of services being provided; identifying information of person/entity who hired service provider; identifying information of property owner including county and tax identification number.

• Provisions to challenge the validity of a Notice of Retention.

• Priority for all preconstruction service liens relate back in time to the filing of the Notice of Retention. Exception: a preconstruction services lien is subordinate to a loan to the extent preconstruction services are provided after the recording of the loan.

• Required to file preconstruction lien within 90 days after completing the services.

• Required to file lawsuit to foreclose preconstruction lien within 180 days of recordation of the preconstruction lien.

HB 260 – Mechanic’s Lien Revisions

• Changes to the mechanic’s lien law from this bill apply to all private projects which commence on or after August 1, 2011. Current law stays in effect until July 31, 2011.

• Eliminates the requirement for the filing of a Notice of Commencement with the SCR on private projects.

• Requires all persons or entities (including general contractors) to file a Preliminary Notice in order to preserve lien rights on private projects. Preliminary Notices are still required to be filed within 20 days of commencement of the claimant’s work.

• Adds additional information required to be included in Preliminary Notice (tax identification number(s) for each parcel where work is to be performed and the name of the county where the property is located).

• Requires the construction lender to file with the SCR a Notice of Construction Loan “promptly” after and “in conjunction with” the recording of the trust deed with the loan closing.

• Requires the construction lender to file with the SCR a Notice of Construction Loan Default within five days of the recording of a notice of default with county recorder.

• Requires all filings with the SCR to contain tax identification number(s) for the property.

• Establishes that the First Preliminary Notice filed with the SCR is deemed to be the first work for priority purposes and the relation back doctrine. First work will no longer be determined by actual work done on the property.

• Provides for the persons or entities who have filed a Preliminary Notice with the SCR prior to the recording of the trust deed to withdraw their respective Preliminary Notices at the request of the construction lender in order for the construction lender to be placed in first position for priority purposes.

• If a party has withdrawn its Preliminary Notice at the request of the construction lender, the party must re-file its Preliminary Notice within 20 days of the bank’s recordation of the trust deed to preserve its lien rights.

• Requires that the standardized building permit also include the tax identification number for each parcel of property for the project as well as the county within which the project is located.

• Requires the governmental entity issuing the building permit to transmit the building permit information to the SCR for filing for informational purposes only.

• Of note, while not dealing specifically with mechanic’s liens, government projects, as it relates to notice requirements for bond claims, will continue as currently constituted. Filing by owner or general contractor of the Notice of Commencement for the project is unchanged. Thereafter subcontractors and suppliers are required to file Preliminary Notices in order to preserve bond claim rights.

This material is provided for educational purposes and as a general reference only. It is not to be used or construed as legal advice. Due to the changing nature of laws, you should consult with an attorney for specific requirements or interpretations that may apply to your particular situation.

Brian J. Babcock, Esquire (Contributing Author)

Babcock Scott & Babcock P.C

Friday, February 11, 2011

Lien Law Online eLert for 2/10/2011 - South Carolina

February 10, 2011

If you recall, South Carolina enacted recent changes to its Mechanic’s Lien statute to protect landscapers, where the value of the work exceeds five thousand dollars ($5,000) and the work was performed pursuant to a written agreement with the owner. The statute defines “landscaping service” fairly broadly, to include land clearing work, and states that the work need not be related to the actual construction or repair of a structure in order to be covered by the statute. South Carolina’s Supreme Court has now decided on a case involving landscaping services performed prior to the effective date of this new statute (S.C. Code §29-5-26), and South Carolina recognizes the existence of a mechanic’s lien for landscape and irrigation installation performed without a written agreement as well. Earthscapes Unlimited, Inc. v. Ulbrich, 703 S.E.2d 221 (S.C. 2010)

C. Allen Gibson, Jr., Esquire (Contributing Author)
James E. Weatherholtz, Esquire (Contributing Author)
Buist, Moore, Smythe & McGee, P.A.

Thursday, February 10, 2011

Lien Law Online eLert for 2/10/2011 - New Jersey

February 9, 2011

The New Jersey chapter has now been completely updated and includes all of the new statutory forms based on the amendments that were passed into law in January 2011.

Dennis A. Estis, Esquire Contributing Author

Steven Nudelman, Esquire Contributing Author

Greenbaum, Rowe, Smith & Davis LLP

Thursday, January 20, 2011

Lien Law Online eLert for 1/12/2011 - New Jersey

January 12, 2011

The Acting Administrative Director of the Courts of New Jersey recently issued a directive involving the proper venue for enforcement of private construction lien claims. Effective January 18, 2011, all actions involving private sector construction lien claims shall be filed solely in the Civil Part of the Law Division of the Superior Court of New Jersey. In the past, such actions were filed in either the General Equity Part of the Chancery Division or the Civil Part of the Law Division. Since the relief sought in private sector construction lien actions is monetary, these actions are most appropriately filed in the Law Division.

Public sector construction lien (municipal mechanic’s lien) actions shall be filed only in the General Equity Part of the Chancery Division as required by the Municipal Mechanic’s Lien Law (N.J.S.A. 2A:44-137).

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

Lien Law Online eLert for 1/9/2011 - New Jersey

January 9, 2011

On January 5, 2011 New Jersey Governor Chris Christie signed into law a much needed revision to the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1 et seq. (“CLL”) for private construction projects. The amendments clarify various provisions of the statute and conform it to numerous court decisions interpreting the CLL:

•New Timing for Residential Construction Liens. Residential construction claimants now have 120 days to file a Notice of Unpaid Balance and Right to File Lien (“NUB”), arbitrate the claim, and record the lien.

•Multiple Liens Against the Same Residential Project. There are several new statutory provisions designed to avoid inconsistent arbitration awards on the same construction project.

•New Forms. New forms were created for the NUB, the lien claim, amended lien claim, form of affidavit used to summarily discharge lien claims and a standard form for the bond used to discharge a construction lien claim.

•New Definitions. These include:

o“Residential Construction” - A construction project which includes any residential units is deemed “residential” in nature.

o“Filing” - Delivering a document to the County Clerk is now defined as “lodging for record” as opposed to “indexing,” when the clerk files/ records the documents.

•Liens on Fee Interest. The fee interest (held by the landlord) is now only subject to a lien claim in a limited number of circumstances.

•The Lien Fund. The statute provides more detailed guidance on calculating the lien fund in order to ensure than an owner will never pay more than once for the same work.

•Liens Against Common Elements. The only remedy for claims against a community association is a court-ordered assessment against the unit owners.

•Suppliers to Suppliers May Now File Liens. A supplier to a supplier who falls within the first three tiers of the contracting chain and has a written contract may now file a lien.

•Enforcement by Summary Action. New procedures and parameters for enforcing a lien in Superior Court are spelled out in the amendments to the CLL.

•Residential Construction Liens and the Allocation of Partial Payments. A lien claimant who receives a partial payment must release a share of interest in the property proportionate to each subdivision or tract.

•Discharge of Liens by Owner. Where the lien claim has been paid in full, the claimant has failed to discharge the lien, and 13 months have passed since the date of the lien claim, the owner may now unilaterally have the lien discharged. The owner must file a discharge certification and affidavit setting forth the circumstances of payment to summarily discharge the lien without court intervention.
The New Jersey chapter of LienLaw Online will be updated shortly to reflect these new amendments.

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

Lien Law Online eLert for 1/2/2011 - California

January 2, 2011

Important changes in California’s lien law went into effect January 1, 2011. One of the changes requires lien claimants to serve any mechanic's lien they record with the project owner along with a Notice of Mechanic's Lien to perfect their lien rights. The specific wording which must be used for the Notice of Mechanic's Lien and the revised Claim of Lien form has been updated on the website.

Also, a lien claimant will need to record a Notice of Lis Pendens with the County Recorder's Office when filing a Lien Foreclosure 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.

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