March 22, 2016
1. Preliminary Notice
Many states require a subcontractors to serve what is commonly called a “preliminary notice” before starting the work. Generally, this document must be served on the owner, lender, and prime contractor. If a state has such a requirement, there is usually a standardized form, or at least required language that must be followed. Additionally, some states require a claimant to give a notice to the owner and construction lender of an intent to file a lien.
The language and contents of the notice vary from state-to-state but typically require the claimant to identify the:
- name of the claimant;
- name of the owner and prime contactor
- address of the project;
- party with whom the claimant contracted;
- scope of work or materials furnished by the claimant;
- date work first performed; and
- any unpaid amounts.
Some states require strict adherence to the notice requirements and will not enforce any subsequent lien should the requirements not be met. Other states do allow for deviations from the mandated information so long as those deviations do not result in prejudice to the other party.
2. Claim of Lien
As with preliminary notices, liens usually must include required language which varies from state to state . Liens are recorded at the county recorders’ office and almost invariably enforced in the county where the property is located. Liens must be recorded within a certain period of time. Most states have time limits of three to six months to record a claim of lien. But three to six months from what? Some time periods are triggered from the date the claimant finishes work. Other time periods are not triggered until the project is completed. Thus, it is important to know the specific trigger in your jurisdiction and calendar the last day to file. A late filed lien will almost invariably be unenforceable. It is also important to state the lien amount correctly. If the lien is improperly inflated it could be void as a matter of law.
Once the lien is recorded, it must be served on the owner. If notice is not given to the owner or the lien documents do not have the required content, the lien is subject to attack.
3. Filing Suit
After the lien is filed, the claimant has a period of time to file suit on the lien. This is known as “foreclosing” on a lien. If a lien foreclosure suit is not filed within the required time, the lien is void as a matter of law. However, depending on the requirements of the owner, lender or title company, a request might be made to the Prime Contractor to get the lien officially removed from title by way of a petition.
Lien release bonds play an important role in lien cases. Even if the lien has been caused by the owner’s actions, the Prime Contractor will feel the heat to get the lien released from the property. This is where lien release bonds play a key role as these bonds will keep the owner and the property out of the litigation.