Keys for Effective Use of Mechanics Liens
Statutory Authority For Liens
Private Project: KRS 376.010, Any person who performs labor or furnishes materials for the erection, altering, or repairing of a house or other structure , or for the improvement in any manner of real property, by contract with or by the written consent of the owner, contractor, subcontractor or agent shall have a lien thereon, and upon the land upon which the improvements were made or on any interest the owner has therein.
Public Project: KRS 376.210, Any person who performs labor or furnishes materials or supplies for a public construction project by contract, express or implied with the owner thereof or by subcontract thereunder, shall have a lien on the funds due the contractor from the owner of the property improved.
Furnishes materials: Lien may apply to any and all materials used in the construction of the structure. Materials delivered to job site but not incorporated into the improvement may also be included in lien.
May not be picked up at yard or store. Tools and equipment used on project not included.
Written Agreement: Must have valid contract directly or indirectly with the owner of the property (privity). Contract can be with general contractor or subcontractor (but not a sub-subcontractor, i.e. can not be a supplier to a sub-subcontractor.
Rental Equipment: Lien exists for the reasonable rental price of equipment and machinery used in performing work to improve real estate.
Off-site Improvements: Must be directly connected to construction, erection or alteration of structure.
Overhead, Insurance, Taxes and Profit: Not valid for inclusion in lien unless included in contract price or where they constitute reasonable value of labor or materials furnished.
Perfecting and Enforcing Liens on Private Projects
Notice Requirements: Persons not contracting directly with owner must provide notice of intent to file lien with the owner. Purpose is to enable owner to retain money due contractor and apply it to pay lien claim.
Time Limits: Within 75 days from the day the last item of material or labor was performed on the project for single or double family dwellings.
Within 75 days after the last item of material or labor is furnished for claims less than $1,000.00 on all other construction..
Within 120 days after the last item of labor or material is provided for claims over $1,000.00.
Contents of Notice of Intent:
Must be in writing, inform the owner of the clear intent to hold the property liable for the claim, the amount for which lien will be claimed, last day upon which work was performed or material delivered.
Must be mailed via first class mail, (can mail certified, but also must mail first class).
Filing of Lien Statement: Lien itself, in Kentucky is a separate written document. Lien technically exists when one performs labor or provides material However, must file a written sworn statement within the statutory time frame or lien is dissolved. Must be filed within 6 months from the last date material supplied or labor performed.
Must be filed with the office of the county clerk of the county in which the improvement is located. Must describe the property with particularity. Must correctly be provided to the Owner. Must describe who the materials and or labor were provided to. Name, address and if a corporation, the name of the agent for service of process. Must be subscribed and sworn to before a notary public.
KEY: Claim shall send by regular mail, a copy of the filed statement to the property owner within 7 days of filing.
Perfecting and Enforcing Liens on Public Projects
Preliminary notice of intent is not required to perfect lien, but is necessary to establish priority. Preliminary statement filed with county clerk in county where public agency is located. Must state that person has or expects to furnish labor or material and the price due. Effective date of lien relates back to the date of the filing of the preliminary notice.
Must file lien itself within statutory time frame or lien dissolves.
Formal Lien Requirements: Writing verified by affidavit of the claimant or authorized agent (may be attorney or account manager).
Must be filed with county clerk’s office in county where work is performed or labor furnished.
Must be filed within 30 days after the last day of the month in which any labor or materials furnished to project. Must include amount due and owed, include last date labor or material provided, and the name of the public improvement.
KEY: After lien is filed, it must be filed with public authority with proof that a copy was sent certified to the contractor or subcontractor with whom claimant contracted.
Enforcement of Lien: Lien must be enforced through a condemnation action within one (1) year of filing of the lien. Amounts received in condemnation action are pro-rated between various lien claimants.
On Public Projects: Once lien is filed with public agency, the contractor has 30 days to protest the imposition of lien. Once a protest is filed, the owner will hold the funds, and the claimant must file a lawsuit within 30 days or the owner can release funds.
Conclusion: Liens are effective tools if used properly. Liens filed before a loan closing are golden. If there is no upcoming financial impact, the lien can remain on property until suit is filed by claimant. Burden is on claimant.
Liens can be “bonded off” by owner or contractor, replacing the real estate with commercial bond. You then find yourself in a normal lawsuit.
The key to effective use is to train your accounting staff to send notice of intent letters early, and to file liens whenever you feel you are being ignored by the contractor or owner. Developing a strategy and a reputation for protecting your own interests will go a long way in developing a good credit policy.
Don't be afraid of the impact of filing liens. Your customers will understand you are serious about getting paid for the work you do. You won't lose good customers, only bad ones. |