For contractors, a mechanic’s lien is a process for a contractor to collect payment on work performed. The State of Minnesota has strict guidelines as to when to file a mechanic’s lien and how long a contractor has to enforce that lien. Failure to comply with these strict guidelines could relinquish any lien rights a contractor has.
What is a Mechanic’s Lien?
A “lien” is a form of security interest over a property. It is a legal right or claim against a property. For example, a homeowner takes out a mortgage through Bank X to purchase a home. Bank X would have a lien against the homeowner’s property until payment of the loan has been paid in full. The same goes for loans on a vehicle. Essentially, the creditor has an interest and legal right to the vehicle until that loan is paid off.
A “mechanic’s lien” is similar but is specific to those who have supplied labor or materials that improve a property. Just like a house or car lien, the holder of the mechanic’s lien can force foreclosure on the property and try to collect through the sale of the property. Just like a house or car lien, if the property sells for less than what the debtor owes, the creditor can file for a deficiency judgment to hold the debtor responsible for the rest of the amount. It is important to note that in order to have rights to a Mechanic’s Lien, a contractor must be licensed by the State.
Preserving Your Mechanic’s Lien Rights
Giving proper notice is the first step every contractor should take in order to preserve their Mechanic’s Lien Rights.
A contractor must give a property owner written notice of intent to file a lien if the contractor is not paid. Usually this is done when payment has not been made, however, if the contractor used subcontractors (subcontractors are essentially contractors with a contract to perform certain work for the general contractor), the contractor must explain to the property owner that the subcontractors and suppliers may also have a lien on the property if not paid. This must in the written contract, or if not, must be delivered to the property owner within 10 days after the work is agreed on. This notice must either be delivered certified mail or in person. If the contractor does not give proper notice, the contractor does not have any lien rights.
Subcontractors must also give a specific notice in order to retain their lien rights in the case they are not paid by the contractor. The notice should include the name and address of the subcontractor, the name and address of the contractor who hired him, and the type of service or materials the subcontractor provided, including the value. This notice must be given to the property owner within 45 days of the time the subcontractor first starts work on the property, or first furnishes material for the property. This notice must either be delivered certified mail or in person. If this deadline is missed, the subcontractor does not have any lien rights.
Filing and Enforcing the Lien
Filing the Lien
A lien statement is filed in the county in which the property that received work or materials I located. A copy must be delivered to the property owner either personally or through certified mail. The lien must be filed within 120 days after the last material or labor is supplied for the property.
Enforcing the Lien
After filing a lien statement, in order to enforce a lien, the lien holder must bring a civil lawsuit against the property owner. When a lawsuit is initiated, other lienholders to the property become defendants with the property owner in the lawsuit. These other lienholders will have to answer the lawsuit just as the property owner would. After filing the complaint, the contractor must also notify the other lien holders of the lawsuit by sending them a summons. The summons must contain the lien amount, property description, labor or materials supplied for the property, and require that each lien holder file an answer to your lawsuit with in 20 days. If the contractor does not file a civil action against the property owner within one year of filing the lien, the lien is unenforceable.
Upon initiating the lawsuit, the Contractor must also file a Notice of Lis Pendens (Notice of Litigation Pending). This notice becomes attached to the property and notifies potential buyers of the lien. This serves as a deterrence for buyers and makes it difficult for the property owner to sell unless the liens are settled. Usually, a property owner will try to settle the debt outside of court in order to sell the property.
Civil litigation regarding mechanic’s liens can be a long process especially if there are numerous lienholders. It is in the best interest of the contractor to have an attorney well-versed in mechanic’s liens to ensure the contractor can collect the maximum amount.
Does this all seem complex to you? You are not alone if it is. However, at Thooft Law, navigating, filing, and litigating mechanic’s liens is part of our practice. We are well-versed in business law, contracts, and lienholder’s rights. We have successfully defended business in Minnesota and North Dakota and have litigated cases regarding mechanic’s liens. Let us help you with filing your mechanic’s lien.