A Desk Reference to Ten Mechanic's Lien Common Mistakes

Being a creature of statute, the mechanic’s lien process contains many pitfalls for the unwary. While there are a number of ways a claimant can run into problems during the mechanic’s lien process, the following presents ten common mistakes encountered.

1. Waiting Until the Last Minute to File a Lien
   Being technical in nature, most mechanic’s lien statutes require strict compliance with the process of obtaining a lien. By waiting until the last minute to file a lien, it may be difficult to obtain the correct information necessary to file the lien. Such information may not be readily available or, in a rush to get the lien filed, the wrong information may be provided that could, upon closer scrutiny, invalidate the lien.
2. Failure to Properly Identify When the Work "Ends" and to Record the Notice Within the Allotted Time
   You must identify the exact date contract work ends. The clock begins to run the day the claimant last performs work or delivers project materials. Mechanic's lien statutes require a claimant to record its mechanic's lien within a certain period of time in order to preserve lien rights. As a trap for the unwary, there is ample case law which supports the proposition that the time period for filing mechanic’s liens runs from the date last labor or materials were furnished on the project, rather than the last date equipment was removed from the project.
   Claimants often stumble by failing to accurately define the "task," the completion of which starts the clock. Typically, once the time to record its mechanic's lien has expired, the claimant cannot revive the time limit by doing additional work incidental to the original contract.
3. Wrong Party to Assert the Lien Claim
   Who is the proper claimant? Only the actual party to the contract has the right to enforce a mechanic's lien. In one case, a contractor entered into a contract with a homeowner, signing the contract as an individual rather than as a corporate representative. Mullis v. Brennan, 716 N.E.2d 58 (Ind. Ct. App. 1999). Unfortunately, when it came time to record a lien, the corporation, as opposed to the individual, recorded it. The court ruled against the contractor, noting the strict construction of the mechanic's lien statute's requirements relating to the persons entitled to the lien. Id. at 63. Claimants should take care when signing contracts. For example, if a person is signing as a corporate representative, that distinction should be clearly shown in the signature block. Contracts should be carefully reviewed before the mechanic’s lien is filed. The person or entity pursuing the lien must exactly match the legal party to the contract.
4. Overstating the Amount of the Lien
   When recording a mechanic's lien, a claimant should be careful not to overstate the lien amount. In some jurisdictions, an intentional or negligent overstatement of the lien amount can invalidate the lien. While an honest mistake may not necessarily void a lien, an overstatement of the amount due in the lien will likely hamper efforts to enforce the lien, and potentially may even lead to invalidation and unenforceability of the entire lien.
5. Failure to Properly Identify the Property to Which the Lien Attaches
   Properly identifying the liened property almost always proves more difficult than initially expected. Securing proper identification often merits a title company's services and often takes several business days. Numerous mechanic's lien statutes require a claimant to include both the legal description of the property and the street and number (if any) where the improvements subject to the lien are located. In one case, a court found a mechanic's lien invalid and overturned a foreclosure because the mechanic's lien included the wrong legal description of the property at issue. Froberg v. N. Indiana Const., Inc., 416 N.E.2d 451, 454 (Ind. Ct. App. 1981). Some courts have enforced mechanic's liens as long as the property description is sufficient to identify the land to which the lien attaches. However, to avoid potential problems, you should be sure to carefully determine and confirm the accurate legal description of the property.
6. Failure to Properly Identify the Owner of the Real Property
   In addition to properly identifying the property, a mechanic’s lien must list the correct legal name of the property owner. Many state statutes require the lien notice to list the property owner's name and latest address as shown in the county's property tax records. Sometimes courts strictly interpret this requirement and may require the owner's name to be exactly correct. In one case, a contractor filed a notice of lien against a company named "Transco," when in fact the property owner was "Transco Railcar." Logansport Equip. Rental, Inc. v. Transco, Inc., 755 N.E.2d 1135 (Ind. Ct. App. 2001). Even though both companies had the same ownership, the court invalidated the lien, stating that although "[h]ypertechnicalities should not be used to frustrate the remedial purpose of mechanic's liens, … we find that listing the wrong owner on the notice is not a hypertechnicality." Id. at 1137.
7. Failure to Give Proper Pre-Lien Notices to Owner
   Some state statutes require such a notice in order to preserve a lien. You should make inquiry as to whether the pre-lien notice provisions apply.
8. Failure to Initiate Lien Foreclosure Litigation on Time
   Once a lien has been properly recorded, the claimant must file suit to foreclose on the lien within a certain period of time. In some states, this time limit can shorten if the property owner provides written notice to the lienholder to foreclose the lien. The requirements for such notice are almost as rigid as the requirements for filing a lien. Even though a court ultimately may not hold that an owner's letter provided notice, any communication asking, or demanding, that a contractor drop or enforce a lien should be carefully scrutinized to determine whether it (even arguably) meets the requirements of such a notice.
9. Not Filing Proper Authentication for the Lien
   Most statutes require that the notice of intention to hold a lien must be filed as a verified or sworn statement. Documents that are, at best, unattested statements do not meet this requirement. In H.A.M.S. Company v. Electrical Contractors of Alaska, Inc., 563 P.2d 258, 262 (Alaska 1977), the trial court recognized a definition between a verification and an acknowledgment of a lien and rejected the claimant’s arguments that a notary acknowledgment substantially complied with Alaska’s statutory verification requirement.See also Tefco Const. Co., Inc. v. Cont’l Cmty. Bank & Trust Co., 829 N.E.2d 860 (Ill. App. Ct. 2005)(lien was rejected because the claimant’s lien was not sworn or verified by affidavit, as required by Illinois law).
10. Failing to Comply With Licensing Requirements
    In certain states, an unlicensed claimant has no right to claim liens. In other jurisdictions, a claimant not licensed to perform work in the state where the lien is asserted is unable to pursue a lien action, once filed, until the claimant is licensed.

Conclusion
Although this is not an exhaustive look at all the potential pitfalls awaiting mechanic's lien claimants, paying attention to these details may help you avoid common errors.

Posted by: Terrence L. Brookie

Categories: Mechanics’ Liens