Chapter 6 Liens Opening Questions Why is a lien on real property so powerful? What are your experiences with liens? Is a lien “property” or part of an estate? What rights to lien holders have? Is this body of law good for society?

Types of Liens Statutory lien Equitable lien Contractual lien Voluntary vs. involuntary lien Mechanic’s or materials lien Judicial lien Tax lien Artisan’s lien Focus for this class

What is a Mechanic’s Lien The right of one who renders services or supplies materials in connection with the improvement of real property to seek a judicial sale of the realty to satisfy unpaid claims. What is included in “rendering services” or “improvement” to real property? What about a delivery person that delivers supplies to a property or a guard that is hired to watch over those supplies? Environmental clean up? Concept of “Permanency” This a concept that mechanic’s liens should cover permanent work and not temporary work. Are mowing lawns permanent? What about adding benches?

Parties to a Lien Lienor – one who attaches a lien Lienee – party whose property is subject to the lien

Buchanan v. Overley, p. 119 (#1) 178 P3d 53 (Kan App 2008) Single-Family Home Contract. Overleys hired Buchanan to build a single-family home on land they owned. Dispute over Quality. Overleys did not pay based on the qualify of the work. Builder Files Lien. Buchanan filed a lien. Lien Failed to Include Builder’s Address. Is the lien invalid for failing to have an address. Address Listed 21 Times in Attachments. The correct address was listed 21 times in attachments to the lien. Strict compliance. Why require strict compliance? 5

Lien Basics: Content 1. Amount due under the contract (for labor, materials, and so on) 2. Amount of time within which work is to be completed 3. Amount of time permitted for payments and any schedule of payments 4. Description of the real property involved 5. Description of the work to be completed 6. Signature of the parties. (If the property is community property or held in tenancy by the entirety, then both spouses’ signatures are required.) 7. If the property being repaired or improved is consumer property, Regulation Z (12 C.F.R. § 226) requires the following disclosure to be made: The buyer may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. 8. Provisions for breach of the agreement (i.e., nonpayment or nonperformance), such as withholding payment or obtaining another contractor.

Ontiveros v. Sanchez (#2) 3 p3d 69 (NMCA 2000) Unjust Enrichment Two couples purchased homes from a general contractor. The couples paid a large part of the purchase price to the general contractor but the general did not pay the subs. The general contractor went out of business leaving the homes only partially completed. The couples completed the work at extra expense to themselves; however, the final homes were worth more than the cost to build them. Should the couples have to pay the subs? 7 OwnerContract Price Paid Contractor Actual Cost Value Sanchez$63,000$26,000$125,456$144,456 Parker$73,000$45,000$120,851$140,851 MN Law: Recovery limited to the extent of amount unpaid to the general contractor.

Basics of Mechanic’s Lien Rights Who can claim liens? – Original or principal contractors – Subcontractors – Persons supplying labor – Persons supplying materials Types of claims – Written contracts – Implied contracts (some states) Priority Filing Lien dates to when work begins – not date filed Permanent lender must be sure all liens are removed before lending. Construction lender must make sure it’s lien/mortgage is first by not allowing work until it’s mortgage is filed.

Who Is Subject to Liens? Property owners Landlords with consent (notice of nonresponsibility posted at construction site might relieve noncontracting owner of liens) – Consent statutes – Contract statutes Landlords who participate with tenants in improvement of the property Consider 6.2 – Failure to Prove Lien Notice Sent Notice sent certified mail Lien holder unable to produce evidence of receipt.

RTBH Inc (McAndrews). v. Simon Property Group (#X) 849 NE2d 764 (Ind App 2006) Mechanics Lien: Improvements must be under the authority of owner 20 Year Lease. Dick’s Sporting Goods entered into a lease with Simon to build a store on Simon’s land. Dick’s Building the Store. Simon reviewed the building plans and noted “Landlord’s review of contract documents is for design intent and criteria compliance only.” Simon also agreed to complete construction if Dick’s did not. Dick’s hired SC Nestel, Inc. to build the building. Nestel hired McAndrews to do the windows and glass. Nestel never paid McAndrews and filed a claim against McAndrews for damages. Simon had no interaction with McAndrews and little with the general contractor. McAndrews filed a lien against Simon. 10 SC Nestel Simon Dick’s Owns the land lease General Contractor Buidling Contract McAndrews Sub-Contractor Contract for Windows Approval Required

Tarlton v. Miller’s of Claflin (#x) 227 P3rd 23 (Kan. App. 2010) Subcontrator versus Direct Contractor Single-Family Home Contract. Tarltons hired Gisick to build home. Gisick Dies. Builder died before finishing home and the estate was not able to pay all the sub-contractors. Subs-File Liens. Subs Failed to Give Notice to Homeowner. Subs Claim Homeonwer Consented by Being Direct Relationship. Evidence of Relationship – Tarltons worked with Gisick – Goods sent to Gisick – No contracts with subs and Tarltons 11

MN Law 12 Consent State. Lien will attach to the lessor’s interest if the lessee improves the property and the lessor has actual knowledge of the improvement. License Required. Contractor must be licensed, if job requires a license, to get a lien. Contractor Pre-Lien Notice. Contractor must give owner written notice of intent to file a lien. If there is a contract it needs to be in the contract. Otherwise, the notice must be delivered personally or by certified mail within 10 days of the agreement. Subcontractor Notice. Also required, but within 45 days of first furnishing labor, skill or materials. “If we are not paid by your contractor, we can file a claim against your property for the price of our services.” Exceptions. No pre-lien notice required if no subs (or if owner is working directly with the subs). Larger multi-unit residential and commercial exceptions. Allowed to Pay Subs Directly. No Lien Against Government. Mechanic’s Lien Statements. The lien ceases 120 days after final contribution, unless the lien is filed. Foreclosure. Must commence action within one year of last contribution. Lis Pendens Filing.

Priority of Liens End-of-Chapter, Question 4, p. 133 A is a carpenter and has completed the framing of eight homes for G, the general contractor. Prior to A’s Work: – A = NOV 22 – B had leveled and graded the property – AUG 1 – C had put in the foundation – SEPT 15 – D had staked out the driveways and homes – AUG 15 – E had partially installed plumbing – AUG 30 All served preliminary notice A construction mortgage was filed AUG 1 No one has been paid. All have filed liens by DEC 1. Who has priority – the liens or the mortgagor? What is the order of priority among the liens? 13

Priority of Mechanics Liens Common Law. All liens are treated equally as if all the work began at the start of the project. (MN LAW) Time of Filing. Some states give priority based on when the lien was filed. 14

Priority of Liens Financial lender – when is the lender given a higher priority than the supplier or builder? Question 6, p Mortgage lien filed after Schalmo Builders had performed soil test and staked out the locations of the buildings. The builder foreclosed and Bank One as the construction mortgage holder claimed priority. Who wins? 15

Consider 6.3, p. 128 New Dentist Office. General Hired Sub for Cabinets. Favalora, general, hired Pioneer as the sub. Sub Submitted Bill. Pioneer billed Favalora and Favalora billed owner for that amount. Owner paid Favalora. Favalora did not pay sub. Sub Filed a Lien. Owner paid off sub and withheld money remaining owing to general contractor. General Sues. Can the sub contractor work directly with the owner to be paid? 16 Owner – Dentist General – Favalora Sub-Pioneer Paid sub directly because General did not pay and owner wanted lien removed. Start here thurs

Pro Rata Distribution under Mechanic’s Liens Example from book, p. 129 $15,000 left to be distributed to Akron, Barkley, and Clark who are owed the following: Akron= $15,000 Barkley= 10,000 Clark= 5,000 Total liens= $30,000 Akron= 15,000 ÷ 30,000, or 1⁄2 Barkley= 10,000 ÷ 30,000, or 1⁄3 Clark= 5,000 ÷ 30,000, or 1⁄6 Therefore, the $15,000 would be distributed as follows: Akron= 1⁄2 of 15,000 = $7,500 Barkley= 1⁄3 of 15,000 = $5,000 Clark= 1⁄6 of 15,000 = $2,400

Timing of Liens End-of-Chapter Q 5, p couples purchased homes n the Green Meadows subdivision and they had all moved in by August Two days before Christmas the workmen all filed liens dating back to the beginning of construction or May Who has what right? 18

Judicial Lien Attaches to real property when a plaintiff wins a judgment against a land owner. Lis Pendens = “suit pending” Plaintiff must first file a lawsuit which affects the title or use to specific real estate – it cannot be used for only monetary claims. 19

Tax Lien Government lien for failure to pay taxes Governments often pass laws giving priority to tax liens over other liens – even those filed prior to the tax lien. What do lenders do to help remove this threat? 20

Perfection of a Lien Varies by state Notice. Notice to the owner is usually required before filing Notice must include items such as: name and address of the lienor, the name of the person with whom the lienor contracted if not the owner, the labor or material provided, the dates when the work was started and completed, and a description of the property and the owners' interest, plus the amount due. Filing. A filed lien becomes part of the public record. Termination of a Lien. – Paid – Bond paid to court pending litigation (this allows the owner to sell clean property) Subcontractors – Pennsylvania Rule. An owner needs to pay a subcontractor even if the owner already paid the full contract price to the general contractor. – New York Rule. A subcontractor’s lien I limited to the amount still owed the general contractor at the time the ien is filed. The owner is not compelled to pay more than the contract price. 21

22 End-of-chapter Q 1, p Chagnon Lumber Lien. Chagnon Lumber sold materials to Stone Mill Construction. Stone Mill Construction – Sold Home. Stone Mill built a home and sold it to John and Ann Breiten. Stone Mill gave the Breiten’s an affidavit stating that the home was clear of liens. Within Lien Filing Period – Chagnon Filed Lien. Lawusit. Breiten’s claim no knowledge of lien. End-of-chapter Q 8, p Morris Plumbing = General Contractor. Spire Communications = Owner. Spire hired Morris to help build a fiber optic network around Atlanta. New Agreement. Spire fell behind in payments and worked out an agreement with Morris. However, Spire did not pay the settlement payments as quickly as Morris wanted and Morris filed a lien. Lien Inaccuracies. The amount was wrong and the lien was filed in one county but work was done in several counties. Is the Lien Valid?