Whether you are a business owner, contractor or property owner, you likely have heard of construction liens. If you do not regularly deal with such liens, you may not be familiar with how they work. Here are the basics. Be aware there are important details not contained in this brief discussion.
A mechanics or construction lien is a remedy to secure payment for labor, skill, materials or machinery furnished for the improvement of a property. Such liens generally are statutory rights. First, there is no replacement for reviewing actual language of the statute, or conferring with an attorney who is versed in the applicable law. That said, you do not have to have a statutory treatise to gain a basic understanding of lien rights.
Chapter 514 of the Minnesota Statutes governs mechanics liens. The statute must be followed precisely to preserve the statutory lien right.
The first step one must take to preserve a lien right is to give a pre-lien notice. Unless expressly excluded by the statutory provisions, every person who enters into a contract with a property owner for a construction project must provide the statutory pre-lien notice. Subcontractors, or others who contract or will contract with another to provide labor, skill, materials or machinery, also must give the owner a pre-lien notice.
The requirement for pre-lien notice is only excluded in certain statutorily defined situations. Such situations include when the contractor is the owner of the property, the work is done on an apartment building of more than four family units, or certain other commercial settings.
Timing requirement. The timing requirement of the pre-lien notice depends upon whether the notice is from a contractor or subcontractor. If the notice comes from a contractor, and if the contractor has a written contract for the work with the property owner, the contract should contain the pre-lien notice. On the other hand, if the contractor has an oral contract with the property owner, a written pre-lien notice must be given to the owner, personally or via certified mail, within 10 days after the oral contract is made.
To preserve lien rights, a subcontractor must provide the property owner with the notice, again either by personal service or via certified mail, within 45 days after the subcontractors first contribution to the construction project.
Form and language requirements. Minnesota statute outlines exactly what must be conveyed in a pre-lien notice. Again, the requisite form is different for contractors and subcontractors. For contractors with a contract with the owner, the notice must be in at least 10-point type, if printed, or in capital letters, if typewritten. The language requirements are outlined in the statute (Minn. Stat. § 514.011, Subd. 1), and should be followed exactly.
For subcontractors, the notice again must be in at least 10-point bold type, if printed, or in capital letters, if typewritten. The language requirements are again outlined in the statute (Minn. Stat. §514.011, Subd. 2), and, again, should be followed exactly.
Mechanics Lien Statement and foreclosure. Obviously, the purpose of the pre-lien notice is to preserve lien rights. If the contractor, subcontractor or materials supplier complies with the statutory requirements, and payment is not received for the work or materials, there is a possibility for a mechanics lien foreclosure. The process is similar to that of a mortgage foreclosure.
To preserve the right to foreclose, a Mechanics Lien Statement must be completed and recorded against the property with the county recorder within 120 days after the last work was done or materials were supplied to the project. The Mechanics Lien Statement must include certain statutorily required information.
If payment still has not been received upon compliance with the pre-lien notice requirements and recording of the Mechanics Lien Statement, the party may start the foreclosure process. The foreclosure action must be started within 1 year after the last day that work was done or materials were supplied at the project.
Once the foreclosure action begins, it proceeds as a litigation matter through the court system until the matter is settled or a judgment is rendered. Ultimately, if judgment is rendered in favor of the mechanics lien claimant, attorneys fees may be recoverable and the subject property may be sold at a Sheriffs sale to satisfy the amount owed subject to the lien.
Wisconsin has similar statutory lien rights. There are some distinct differences with regard to timing and required language for the perfection of a lien. As always, it is best to review the actual statutory language or confer with an attorney who is versed in Wisconsin construction lien law, as there are numerous details omitted in this brief discussion.
Pre-lien notice. Wisconsin construction lien procedures are outlined in Chapter 779 of the Wisconsin Statutes. As in Minnesota, generally any person who contracts with a property owner, or who provides labor or materials for a project has a lien right in Wisconsin. There are strict statutory guidelines that must be followed, however, to exercise these rights.
If there is a written contract between a prime contractor and a property owner, there must be a notice outlining the lien rights. The exact language for the notice is contained in the Wisconsin statute. Any person other than the prime contractor who furnished labor or materials for the project also must give written notice of his/her lien rights within 60 days after first furnishing labor or materials. As in Minnesota, there are statutory exceptions to the notice provisions.
Notice of intent to file a lien claim. If a contractor or subcontractor is not paid for work on the project and decides to enforce lien rights, the builder must serve a written notice of intention to file a lien claim upon the property owner. The notice must be served at least 30 days prior to filing a claim on the lien in the court system.
Court action. As in Minnesota, a Wisconsin lien foreclosure action must be filed in the court system. The claim for lien, the lien notice and the notice of intent to file the claim must be filed with the court, along with proof of service of these documents. Again, the foreclosure specifics are detailed in the Wisconsin statutes.
Lien rights and statutory procedure may seem daunting. If your business has any involvement with construction projects, however furnishing labor or materials, or hiring other firms to complete a project for you you will benefit from a basic understanding of construction liens.
Matthew H. Hanka is an attorney practicing at Fryberger, Buchanan, Smith & Frederick, P.A. You can reach him in the firms Duluth office at 218.722.0861.