Mechanics Liens

MECHANIC’S LIENS 

Bryan R. Battina is an experienced Minnesota mechanic’s lien attorney. The information contained on this page addresses liens for real property, which are governed by often specific statutory requirements. While Minnesota recognizes mechanic’s liens in personal property, sometimes called artisan’s liens, they are not addressed here.

A BRIEF INTRODUCTION TO MECHANICS LIENS

A mechanic’s lien is a security interest in a title for real property and is intended to secure payment for services, labor, and material used to improve a piece of real property. In many ways, it is like a mortgage or any other encumbrance on the property. Owners with a lien on their property may find it difficult to sell or refinance. An individual with a mechanic’s lien against a property may secure a judgment in court for the amount he or she is owed. This is accomplished through a foreclosure proceeding. If the property owner cannot or will not pay the value of the lien, the court may order the sale of the property to satisfy the lien.

Any individual or entity that contributes labor, skills, material, or machinery for an improvement to the property is entitled to a lien. While an incomplete list, common examples include:

• Contractors (those who have direct contact with the owner or owner’s representative)
• Subcontractors
• Laborers
• Suppliers
• Architects
• Land Surveyors
• Engineers

If a project is part of a single improvement to the property, each claimant has an equal (sometimes called “coordinate”) priority.

A lien attaches to a property interest on the day the first contribution of labor or material is made for an improvement, whether or not it is a visible improvement. If it is a single improvement, the lien attaches on the first day of contribution, even if an individual claimant has not yet contributed.

While a lien may attach automatically, a lien claimant who wishes it to have any value must “perfect” the lien by completing a series of steps, including recording the lien and giving notice to the property owner.

FREQUENTLY ASKED QUESTIONS

WHAT IS A LIEN?

A mechanic’s lien is a security interest in a title for real property and is intended to secure payment for services, labor, and material used to improve a piece of real property. In many ways, it is like a mortgage or any other encumbrance on the property.

An individual with a mechanic’s lien against a property may secure a judgment in court for the amount he or she is owed. This is accomplished through a foreclosure proceeding. If the property owner cannot or will not pay the value of the lien, the court may order the sale of the property to satisfy the lien.

WHO IS ENTITLED TO A LIEN

In short, any individual or entity that contributes labor, skills, material, or machinery for an improvement is entitled to a lien. While an incomplete list, common examples include:

• Contractors (those who have direct contact with the owner or owner’s representative)
• Subcontractors
• Laborers
• Suppliers
• Architects
• Land Surveyors
• Engineers

If a project is part of a single improvement to the property, each claimant contributing to that project has an equal (or “coordinate”) priority.

WHEN DOES A LIEN “ATTACH”?

A lien attaches to a property interest on the day the first contribution of labor or material is made for an improvement, whether or not it is a visible improvement. If it is a single improvement, the lien attaches on the first day of contribution, even if an individual claimant has not yet contributed.

While a lien may attach automatically, a lien claimant who wishes it to have any value must “perfect” the lien by completing a series of steps, including giving pre-lien notice, recording the lien and giving notice to the property owner. The exact requirements differ depending on whether the lien claimant is the general contractor or subcontractor.

WHAT CONSTITUTES AN IMPROVEMENT TO PROPERTY?

A project is generally considered an improvement if (1) a permanent alteration to the property was made, and (2) it improved the value of the property. This is different than a repair, which involves returning property to a previous state. Improvements also relate to fixtures, or permanent additions that are attached to the property, such as buildings.

One major exception to this involves trade fixtures. Trade fixtures are structures, such as signs, which are attached to the property but are expected to be removed at the end of a business’s tenancy. Minnesota courts consider such items to be personal property.

WHAT OWNERSHIP INTERESTS CAN BE AFFECTED BY A MECHANIC’S LIEN?

Most types of ownership interest are subject to a mechanic’s lien. If a court may issue an order to sell an interest, it may be subject to a mechanic’s lien.

One exception to this is a landlord’s interest. If a landlord did not order or have actual knowledge of an improvement being made to the property, then the landlord’s interest in the property is not subject to a mechanic’s lien.

WHAT IS THE DIFFERENCE BETWEEN A SINGLE AND MULTIPLE IMPROVEMENT AND WHY DOES IT MATTER?

Knowing whether a project is a single improvement or part of separate, multiple improvements is important because perfected liens on improvements that occurred earlier hold priority over liens on later improvements. Whether a project is a single improvement or part of a series of improvements is generally a question of fact determined by the court.

Generally, courts will find that a project is a single improvement if everything is part of the same general purpose, there is minimal time lapse between items of work, or the project is funded by a single construction loan. Courts have also found single improvements in other circumstances.

Conversely, courts consider whether there is little relationship between separate contracts for construction, the use of separate mortgages, the time lapse between phases of work, and the purposes of each item to determine that multiple improvements are involved. When separate improvements are involved, a claimant’s lien attaches to the first day of contribution for that specific improvement.

“PERFECTING” THE LIEN

WHAT IS PRE-LIEN NOTICE & WHAT DOES IT ENTAIL?

Pre-lien notice is a written statement by the lien claimant asserting their right to the lien to the owner of the property. It is intended to ensure that unsuspecting owners are made aware of a potential encumbrance on their property interest. Pre-lien notice must generally be strictly satisfied for a lien to be enforceable. The requirements for satisfying notice differ depending on the relationship to the project.

General Contractors may satisfy the notice requirement by complying with the specific language and formatting requirements required by statute. If there is a written contract, the contractor must include the notice in the contract and provide the owner a copy of the contract. If there is no written contract, the contractor must deliver the notice by person or certified mail within ten (10) days of agreeing to make the improvement.

All claimants more distant to the owner, such as subcontractors or suppliers, must provide notice, in person or by certified mail, to the owner within 45 days of first providing labor, skill, or material to the improvement. The specific language required is laid out by statute. If good faith effort is made to comply, a subcontractor does not necessarily lose their right to a lien for failing to provide proper notice. Still, best practice is to fully comply.

WHO IS ENTITLED TO PRE-LIEN NOTICE?

Any owner is entitled to pre-lien notice. “Owner” is broadly defined to include any party with a legal or equitable interest in the property. The interest needs to be on record with either the County Recorder or Registrar of Title, or otherwise known to the lienholder.

Sub-contractors may request the contractor to provide them with contact information for the property owner(s). Once requested, the contractor has ten (10) days to respond with the name and address of any owner entitled to notice.

WHAT IS THE LIEN STATEMENT?

The lien statement is a document that provides important information regarding the lien claimant, the value and justification of the lien, and demonstrates that other requirements for perfecting the lien have been satisfied. Specifically, it must include:

•        A notice that the lien claimant intends to claim a lien.
•        The amount of the lien.
•        A statement that the amount claimed is due and owing to the claimant
•        A description of the labor, skill, material, or machinery furnished by the lien claimant.
•        The name of the lien claimant.
•        The name of the person for whom the lien claimant performed the work.
•        The dates of the first and last contributions by the lien claimant.
•        The complete and accurate legal description of the property.
•        The name of the current property owner, to the best of the lien claimant’s knowledge.
•        The lien claimant’s post office address (failure to provide the address will not invalidate the lien statement).
•        An acknowledgment that the lien statement must be personally served or sent by certified mail to within the 120-day period on one of the following:
•        the owner;
•        the owner’s authorized agent; or
•        the person who entered into the improvement contract with the contractor.
•        A statement that the lien claimant gave valid pre-lien notice, if required.

It must both be filed with the County Recorder and served upon the known owner(s) of the improved property. By recording and serving the statement, current and prospective owners are given full notice that a lien is attached and may affect their interest in the property.

HOW IS A LIEN RECORDED?

A lien is recorded by filing the lien statement with either the County Recorder or Registrar of Titles (or both) within 120 days after the lien claimant’s last day of work on an improvement. Recorded documents must be signed and notarized. There is also generally a filing fee. The specific requirements and fees may usually be found on the appropriate county website.

A lien claimant that fails to record a lien within 120 days of the last day of work loses the right to the lien and the lien expires. Additional work on the part of the contractor may extend the deadline for recording the lien, but only if the work was meaningful and not used merely to keep the lien from expiring.

HOW IS THE LIEN STATEMENT SERVED?

A lien claimant has 120 days from the last day of work to serve the property owner or the owner’s authorized agent with a copy of the lien statement. This may be done either by personal service or certified mail.

A claimant that fails to serve properly the lien statement will be unable to enforce the lien.

ENDING OR ENFORCING THE LIEN

HOW IS A LIEN DISCHARGED (HOW DOES IT GO AWAY)?

There are several ways to discharge a mechanic’s lien. The first, and perhaps most obvious, is for the property owner to pay the lien claimant, who then files a “satisfaction of lien” with the same recording office used to record the lien. The satisfaction of lien document must list the date and document number of the corresponding lien statement that has now been satisfied.

Alternatively, a lien may be discharged if the lien claimant fails to bring an enforcement action within the statutory period, which is one (1) year after the completion of the contract. After this time, the property owner may demand the lien claimant release the lien. If the claimant does not do so within ten days, the property owner may bring an action to determine adverse claims. If the court finds that the time to enforce the lien has passed, it may order the lien be discharged.

The lien may also be waived or released by deposit, which are both described below

WHAT IS A LIEN WAIVER?

A lien waiver is waiver of the right by the lien claimant to enforce a portion, or all, of the lien amount. A lien claimant may grant a full or partial waiver in return for an early payment by the owner. The owner usually is not required to pay a contractor until 120 days after the contract is completed. However, if a claimant agrees to provide a full or partial waiver, the claimant is entitled to payment before the 120 days pass. For convenience, it is best to agree to lien waivers before filing the lien statement.

WHAT DOES IT MEAN TO “RELEASE THE LIEN BY DEPOSIT”?

A property owner may release the lien against the property by placing a deposit or surety bond with the district court. As previously noted, a lien may often make selling or refinancing property difficult. If a property owner disputes the validity or any other aspect of a mechanic’s lien but does not wish to wait until any claims are resolved, they may file a deposit or bond. Once filed, the lien against the property itself is extinguished.

A property owner must serve notice on a lien claimant of the owner’s intention to request a release by deposit at least ten days before any hearing. There is then a hearing where the court sets the deposit or bond amount, which includes the amount claimed in the lien, an 18% interest deposit, calculated costs of disbursement, and potential value of attorney’s fees.

Once the owner deposits the correct amount with the court, the court issues an order releasing the property from the lien. Any claim the lien claimant has is now against the deposit, not the property itself, and the court orders recovery out of that fund instead of ordering the sale of the property.

HOW IS A MECHANIC’S LIEN ENFORCED?

A mechanic’s lien is enforced by the lien claimant by filing a complaint and summons in the district court where the property is located within one year of the lien claimant’s last contribution to the property improvement. Besides the owner, the claimant must list as defendants all other known lien claimants, including those who have not yet, but still can, record their lien statements.

The claimant must also file a notice of lis pendens where the lien is recorded, to give notice to prospective parties that legal actions are proceeding. Lis pendens literally translates to “a pending lawsuit.”

If you wish to enforce a mechanic’s lien and have additional questions, schedule a consultation with Bryan R. Battina.

WHAT DO I DO IF I AM A PROPERTY OWNER AND A DEFENDANT?

Defendants have 20 days to respond to a complaint from a lien claimant. At that time, the defendant needs to make any counter- and cross-claims they have, as well as state their defense for not paying. Property owners in lien enforcement situations have specific defenses they may raise, based primarily on the lien claimant not being entitled to a lien for failure to satisfy one of the statutory requirements.

If you have been served with a summons and have questions about what to do, schedule a consultation with Bryan R. Battina.

WHAT DO I DO IF I AM ANOTHER LIEN CLAIMANT NAMED AS A DEFENDANT?

Other lien claimants that are named as defendants must take certain actions to protect their own liens. They must assert their lien against an owner and any other lien claimants.

They should also attempt to confirm that the lien claimant who started the lawsuit is actually able to bring the suit (i.e., has satisfied all of the statutory requirements).

If you are a lien claimant who has received a summons in a lawsuit started by another claimant and have questions about protecting your rights, contact Bryan R. Battina.

HOW IS A JUDGMENT FOR THE LIEN CLAIMANT(S) SECURED?

If the court enters judgment in favor of the lien claimant, it may also order the sale of the property to satisfy the judgment. The county sheriff oversees the sale, which is conducted the same as a mortgage foreclosure sale.

Lien claims associated with the same improvement project have “coordinate” priority. That is, none have priority over the others, regardless of when the individual claimant contributed work to the improvement. If there are sufficient funds from the sale, each claimant is paid for the full value of the claim it could demonstrate at trial. If the funds are not sufficient, then the claimants receive payment proportionate to the value of their claim. For example, if claimant X has a $10,000 mechanic’s lien and claimant Y has a $5,000 mechanic’s lien, X will receive $2 for each $1 Y receives from the disbursement.

WHAT CAN A PROPERTY OWNER DO IF IT BELIEVES A LIEN IS INVALID?

When a property owner believes a mechanic’s lien against the property is invalid, either because it has been paid, waived, or is otherwise unenforceable, the owner may bring an action requesting that the court find the lien(s) invalid. This is called an action to determine adverse claims. As previously noted, because a lien may make the sale or refinancing of a property difficult, an owner may wish to bring such an action before a potential lien claimant brings its own suit.

An owner wishing to bring an action to determine adverse claims must file a complaint and serve a summons on all parties that have a potential lien against the property, as well as filing a notice of lis pendens with the appropriate recording office. Because not all parties with a potential claim (such as those that have not, but still could, file a lien statement) may not be known, publishing notice in a trade publication may be advisable.

If you are a property owner who has a lien against your property and you have additional questions, schedule a consultation with Bryan R. Battina.

How do I enforce or defend a mechanic’s lien in Minnesota?

If you are a contractor or subcontractor who has worked on or contributed resources to, an improvement to real property, you may be entitled to a mechanic’s lien as a way of ensuring payment for your work. Enforcing your right to a mechanic’s lien requires carefully following a series of requirements. Failure to meet any one of the requirements may mean forfeiting your right to the lien.

Before you enforce a lien, you must perfect it.

Enforcing the lien begins by ensuring that you have given appropriate notice to all known owners of the property that you intend to place a lien on the property. If you are a general contractor, there are very specific rules about the language and means of providing notice, either in the contract or, absent a contract, within 10 days of agreeing to the work. If you are a subcontractor, you may request a list of owners from the general contractor on the project so that you may provide notice within 45 days of beginning your contribution to the project.

Next, a lien statement, a document listing specific information about the property and the nature of the improvement made to it, must be completed and filed with the County Recorder or Registrar of Titles in the county where the property is located within 120 days of your last day contributing to a project. Similarly, all known owners must be served with formal notice within the 120-day window.

Enforcing the lien may mean heading to court.

Under Minnesota law, a customer has 120 days after the last day of work to pay a construction contract. If you have not been paid after 120 days, you may enforce your right to a lien by filing a summons and complaint, including as defendants for all owners and all others with liens or an interest in the property. You are not really suing these other lien holders, but putting them on notice that they must provide proof of the authenticity of their lien in court. You must also file a notice with the county office where the lien is recorded so that prospective buyers are put on notice.

Following court proceedings, if the court enters judgment in your favor, it may also order the sale of the property to satisfy the judgment. The county sheriff oversees an auction for the property, and all unpaid lien holders are paid from the proceeds of the sale in proportion to the value of the lien they hold.

Alternatively, the property owners may, during the course of proceedings, release the lien by deposit. This means they may deposit money or a bond (normally for some amount above the potential final value of all outstanding liens) with the court. The property is then no longer under any liens and may be freely sold. If the court finds for the lien claimant, the claimant is paid out of the deposit or bond.

What are common defenses raised against the enforcement of a lien?

Property owners facing a potential lien judgment have several defenses that are commonly raised. Most of these must be stated in the answer to the complaint, either as a defense or a counterclaim.

First, an owner may argue that the lien claimant has failed to satisfy one of the statutory requirements for enforcing a lien such as failing to provide notice, failing to file a lien statement, or filing an incorrect lien statement. Similarly, the owner may argue that the lien claimant failed to bring an action within one year of completing work, which is the statutory limit for enforcing a lien.

Alternatively, a property owner may attempt to demonstrate that the value of the lien has been paid in full, or partially waived by the lien claimant. Any lien waiver or satisfaction of lien should be filed with the same county office where the original lien is recorded.

A property owner who is aware of a lien against the property but believes the lien to be invalid for any reason may be proactive in removing the lien by bringing an action to determine adverse claims. This is done by filing a summons and complaint against the alleged lien claimant(s) and all other lien claimants, stating the reason why the lien is allegedly invalid. A court will then determine the validity of the lien and may order a lien be removed from the property.

For more information, please feel free to contact us at 612-455-0505 or by email at bbattina@trepanierlaw.com.