Understanding Mechanics Liens
If you have never heard about a mechanic’s lien, or you have heard the term but do not really know what a mechanic’s lien is, you are not alone.
If you are planning to build or have work done on your home or property, take time to first understand Minnesota’s mechanic’s lien law (Minnesota Statutes, chapter 514). Understanding the law now can save you time, money, and frustration later.
What is a Mechanic’s Lien?
Every person or firm that has furnished work or provided material to build or improve your property is entitled to a mechanic’s lien on the property. This means that the contractor and any subcontractor or material supplier for a building project can go to court and try to take possession of your property if they are not paid. However, there are a number of items you should be aware of in order to avoid liens or determine whether a lien is valid and enforceable.
Contractor Must Be Licensed By the State
A contractor who is supposed to be licensed, but is not, cannot file a mechanic’s lien, even if all other provisions of the contract have been met.
Contractor Must Give You Notice
In most cases, your contractor must give you written notice of intent to file a lien if the contractor is not paid. This notice is required whenever subcontractors or material suppliers are employed to provide labor, skill, or materials for the improvement. If subcontractors are used, the notice is prescribed by law and must be included in a written contract, or, if there is no written contract, must be delivered to you separately within 10 days after the work is agreed upon. The notice must explain that subcontractors and suppliers may also have a lien on your property if they are not paid, even though they do not have a contract directly with you. The notice must state that Minnesota law allows you to either:
- Pay any subcontractor directly and deduct that amount from the contract price; or
- Withhold from the contractor for 120 days after all work is completed as much of the contract price as is necessary to pay those subcontractors directly unless the contractor has given you lien waivers signed by the subcontractors. A lien waiver is a written statement signed by a subcontractor giving up the subcontractor’s right to file a lien against your property.
If the contractor’s notice is not given properly, the contractor does not have the right to a lien against your property.
Subcontractors Must Give You Notice
Subcontractors, including materials suppliers, must also give you a specific notice in order to protect their right to file a lien if they are not paid by the contractor. The notice must give the name and address of the subcontractor, the name of the contractor who hired the subcontractor, and the type of service or material provided and its estimated value. The subcontractor’s notice must be given to you within 45 days of the time the subcontractor first furnishes labor or materials, or it is not enforceable. The notice required from both the general contractor and the subcontractors must be delivered personally or by certified mail to either you or your authorized agent.
You Only Have to Pay Once
If you obtain a valid lien waiver from the subcontractor, or if you pay the general contractor in full before receiving the notice from the subcontractor, you cannot be forced to pay for the services or material a second time if the contractor fails to pay the subcontractor.
To protect yourself from having liens filed against your property, you should have the contractor list in the contract the names of all anticipated subcontractors and material suppliers. In addition, keep track of any subcontractor notices you may receive before your final payment, since some subcontractors may not be listed in the contract. Then, before making final payment, be certain you receive lien waivers signed by each of the subcontractors.
Apportioning Your Payment
Minnesota law gives you, as a property owner, two ways to reduce the risk that a subcontractor will file a mechanic’s lien against your property. First, if you have not yet paid the general contractor in full when you receive the subcontractor’s notice, you have the right to deduct the price of the subcontractor’s goods or services from the amount you owe to the general contractor. You can then pay that amount directly to the subcontractor. If you pay the subcontractor directly, be sure to get a lien waiver from the subcontractor.
Second, for 120 days after all work is completed, you have the right to withhold from the contractor as much of the contract price as is necessary to pay subcontractors unless the contractor has given you lien waivers signed by the subcontractors.
When and Where Liens Are Filed
If a lien is filed against your property (in the form of a lien statement), it must be filed with the county recorder and a copy delivered to you, the property owner, either personally or by certified mail, within 120 days after the last material or labor is furnished for the job. If the lienholder wants to foreclose on your property (i.e., wants to enforce a lien), the lienholder must start that process within one year after providing the last item described on the lien statement.
To Enforce a Lien
To enforce a lien, the lienholder, who has filed a lien statement with the county recorder and delivered a copy to you, must bring a civil complaint against you in district court. When one lienholder begins such an action, all other lienholders become defendants with you, the property owner. These other lienholders must file an answer to the complaint just as you must do. At the time the lienholder files the complaint, the lienholder must also send you and all other lienholders a summons announcing the filing of the suit. The summons will contain the amount of the lien, a description of the property, a description of the improvements made by the lienholder, and a requirement that each defendant file with the court his or her answer to the complaint within 20 days after the summons is served.
Complainant’s Notice of Lis Pendens
In addition to filing a lien statement and a complaint, and sending out summonses, the lienholder bringing the suit must also file with the county recorder a Notice of Lis Pendens (“litigation pending”). The notice must also be filed within one year after the lienholder provided the last item described on the lienholder’s lien statement. This notice is attached to the title of your property and serves to notify buyers (should you decide to sell your property before the matter is settled) that there is a lien on the property. The lis pendens does not, however, extend the one-year deadline for filing the complaint.
Usually the lienholder begins the action at the same time the lienholder files the Notice of Lis Pendens. If the lienholder fails to file the notice within the one year deadline, the lien cannot be enforced against a buyer or mortgage holder who does not know about the lien, regardless of how far the lawsuit has gone.
Action You Can Take
If a mechanic’s lien has been filed against your property, you need to consider your options. One option is to wait for the lienholder to file suit against you to enforce the lien. Then, you can raise any defenses to the lien in your answer. If the lienholder does not file suit and the Notice of Lis Pendens within the
one-year timeframe, the lien is unenforceable.
If you think the lien was filed without justification, you can also bring an action in court to have the lien removed from your title. This type of lawsuit is called an action to determine “adverse claims” in real estate. An action to determine adverse claims on your property may be necessary if you want to have the validity of a mechanic’s lien determined before the one-year deadline. For example, this may be necessary if you want to sell your home before the one year is up. A private attorney can help you determine whether you need to file an action to determine adverse claims if a mechanic’s lien is filed against your property.
There are several ways a lien might be settled after an action is begun by the lienholder. You may settle out of court. If this happens, you, the property owner, should make sure that, as a condition of settlement, the lienholder removes the Notice of Lis Pendens from the title and files a Satisfaction of Mechanic’s Lien form with the county registrar of deeds.
If you do not settle out of court, you may receive a judgment by the court. A judgment takes precedence over lien statements and notices of lis pendens. The lien statements and notices of lis pendens are removed from the title to the property when a judgment is issued. In the event the court finds in favor of thelienholder, it may order the sale of the property to satisfy the lien.
If a lienholder fails to complete any of the steps involved, the lienholder may still try to recover his or her claim in an ordinary civil action, that is, the lienholder can sue anyone with whom the lienholder has a contract (usually the general contractor or you, the property owner).
Chronology of Events in a Lien Process
- Sign the contract. Subcontractors should be listed on the contract.
- The general contractor gives notice to you, the property owner. Notice must be given in the written contract, or by separate notice delivered within 10 days after work is agreed upon if there is no written contract.
- Work begins. Liens of general contractor and all subcontractors attach.
- Subcontractor gives notice to property owner within 45 days after subcontractor first begins work.
- All work is completed.
- (Optional.) If property owner requests, lienholders must furnish within 15 days an itemized list of amounts claimed, and lienholders may not take steps to enforce liens for 10 days after the itemized list is furnished.
- Property owner may pay:
- General contractor (owner must get lien waivers from subcontractors and general contractor); or
- Each lienholder (owner should get lien waivers from each one as owner pays them).
- Property owner may withhold payment from the general contractor for 120 days after all work is completed as much of the contract price as is necessary to pay subcontractors directly, unless the owner is furnished with valid lien waivers by the general contractor.
- If not paid, a lienholder files a lien statement within 120 days after work is completed.
- Lienholder must begin action to enforce a lien within one year after landholder’s work is completed.