Don't resort to squeezing blood out of a turnip: materialmen's liens follow when contractors don't get paid.
However, with mortgage industry problems and an eventual cool down of the real estate market, an unfortunate number of contractors could go unpaid. What happens when a contractor does not get paid for the work they do?
If you are a contractor facing this possibility, or a developer or homeowner unable or unwilling to pay your contractor, you should be familiar with "materialmen's liens."
The following are some frequently asked questions about materialmen's liens.
Q What is a materialmen's lien?
A A materialmen's lien is a charge upon property to satisfy a debt owed to a contractor or anyone providing labor, professional services, materials or equipment for the improvement of real property. The lien can force the sale of the property to satisfy the debt.
Q When can a contractor submit a materialmen's a property?
A A contractor can lien a property when he does not get paid for work or professional services performed or materials or equipment supplied.
Q Why is a contractor allowed to submit a lien on a property?
A Liens are allowed to provide security to contractors that they will be paid for the work, materials, etc. they provide when the person indebted to the contractor cannot or will not pay the contractor.
Q What property can be subject to a materialmen's
A Real property is most commonly the subject of a materialmen's lien. Specifically, the lien attaches to the real property upon which the contractor has provided labor, services, materials or equipment. However, personal property (including improvements to land, such as buildings) can be subjected to a materialmen's lien if the land upon which it lies cannot be subjected to the lien.
Q What notice must be given to a property owner regarding a lien before a lien can be claimed?
A A potential lien holder must provide notice to the property owner (and to the general contractor, if the potential lien holder is a subcontractor) of the right to claim a lien. The notice can be given at any time, but only protects the right to claim a lien for labor, professional services, materials and equipment provided: (1) after the notice is given; and (2) 60 days preceding the date the notice is given.
However, the following are exempt from providing pre-claim notice: (1) anyone who contracts directly with the property owner; (2) laborers; and (3) most sub-contractors who contract directly with the general contractor. Contractors not exempt from this notice requirement must consider the possibility of claiming a lien at the beginning of a project, not when an issue arises.
Q What must a contractor do to claim a lien?
A Within 90 days of the last day the contractor provided labor, professional services, materials, or equipment, the contractor must file a claim of lien with the county auditor for the county in which the real property is situated. The claim of lien must contain: (1) contact information for the lien claimant; (2) the date range on which the labor, professional services, materials and/or equipment was provided; (3) the name of the person indebted to the lien claimant; (4) the street address and legal description of the real property subject to the claim of lien; (5) the name of the owner of the real property subject to the claim of lien, if known; and (6) the amount owed to the lien claimant.
Q What if the lien is disputed by the property owner?
A If a property owner disputes a lien claimed on the owner's property, the property owner can file a bond for satisfaction of the claimed lien. If the amount claimed is $10,000 or less, the bond must the greater of $5,000 or two times the amount of the lien claimed. If the amount claimed is greater than $10,000, the bond must be at least one and one-half times the amount claimed. When a bond is filed, the real property is released from any action to foreclose the lien, because the bond takes the place of the property as a means of satisfying the debt owed.
Q How is a lien foreclosed?
A A claim of lien remains in effect for eight months. During this period of time, a lawsuit must be brought to foreclose the lien. In the course of the lawsuit, the court will determine the validity and priority of the various lien claims against the subject property. If any liens are determined to be valid, the court will order the real property sold and the proceeds used to satisfy the various debts to the lien holders. However, this does not guarantee that all lien holders will be paid in full.
Q What other relief is available to potential lien holders?
When a person owing a contractor for labor, professional services, materials and/or equipment refuses to pay the contractor, in addition to pursing a lien claim, the contractor can simply sue the person. However, the lien procedure is preferable, because the real property generally can be sold to satisfy the lien, while collecting on a court judgment can sometimes be like trying to squeeze blood Out of a turnip.
Additionally, if the debtor is a contractor, the potential lien claimant can make a claim against the contractor's bond. All contractors are required to file a bond with the Washington State Department of Labor and Industries --$12,000 for general contractors and $6,000 for sub-contractors.
For construction projects financed by a lender, a potential lien claimant can send to the lender a Notice to Lender, requiring direct payment. After receiving a Notice to Lender, the lender must withhold the amount claimed from the next draw and subsequent draws.
If the lender fails to do this, the lender's mortgage or deed of trust can be made subordinate to the contractor's lien claim. If the potential lien claimant is not paid within five days of sending the Notice to Lender, a notice of sum due and to become due can be filed with the county auditor of the county in which the property is situated, which can then become the basis for joining the lender in a lawsuit to foreclose the lien.
Q What if a lien claim is frivolous?
A A lien claim debtor who believes a lien claim to be frivolous can apply to the superior court for an order requiring the potential lien claimant to appear before the court to show cause why the potential lien claim should not be declared void. If the potential lien claimant has not met the statutory requirements or does not have good reason for claiming the lien, the lien claim will be declared void.
Often, the potential of facing a materialmen's lien provides significant motivation to a potential lien claim debtor to pay the contractor claiming the lien, rather than allowing the property to be foreclosed to pay the debt.
The materialmen's lien is intended--to provide leverage to contractors to obtain payment for work, professional services, materials and equipment provided on a construction Project.
Materialmen's liens are the creation of statute, so you should become intricately familiar with the materialmen's lien statute (RCW 60.04), or consult someone who is familiar with the statute.
Strict compliance with the statutory requirements is necessary to avoid having to try to squeeze blood from a turnip.
J. Kevin Bromiley is an attorney with Jeffers, Danielson, Sonn & Aylward in Wenatchee. His practice areas are business, commercial and real estate law. He can be reached at email@example.com or 662-3685.
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|Title Annotation:||BUSINESS & TAX LAW|
|Author:||Bromiley, J. Kevin|
|Publication:||Wenatchee Business Journal|
|Date:||Nov 1, 2007|
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