“Mechanic’s Lien: Ensuring Payment In A Distressed Economy” by John L. Waite III
A mechanic’s lien is a useful tool that is available to contractors, architects, engineers, surveyors, and landscapers to ensure that the property owner who benefits from their services is liable for payment. For the unwary property owner, this may result in paying for these services twice. Below is a brief overview of Missouri’s Mechanic’s Lien law and some general guidance for those who may find themselves in a troubling economy. As with all
legal matters, every situation is different and requires foresight to ensure that appropriate steps are taken to protect legal rights and interests. I strongly recommend that anyone who wishes to assert a mechanic’s lien obtain legal counsel before assuming they are entitled to such a lien.
In a nutshell, a mechanic’s lien is a tool that allows any person who performs any work and/or furnishes materials on any building or improvement on land, including repairs, to assert a lien against the real property for the payment of the work and/or materials. The lien attaches to the subject property and in some cases, may entitle the lien holder to force a sale of the property to ensure payment to the contractor. A contractor may also be allowed to step in front of the mortgage lender and property owner when the sale proceeds are distributed to interested parties.
Generally, the enforcement of a mechanic’s lien involves a four step process. The first step requires the contractor to provide certain notices to interested parties, as discussed in more detail below. Next, the contractor files a Statement of Mechanic’s Lien with the appropriate Circuit Court. Third, the contractor files a lawsuit to enforce the lien. And lastly, assuming the mechanic’s lien is upheld and results in a Court Order, foreclosing upon the lien itself. This article will focus mainly on the first two steps, which tend to cause the most problems for contractors.
PRE-LIEN NOTICE REQUIREMENTS
Before a mechanic’s lien may be asserted, there are certain notice requirements that must be followed. The type of notice required depends upon whether the contractor deals directly with the property owner or an intermediary, such as a general contractor. In other words, is your contract with the property owner or someone else? If the contract is directly with the property owner, you are considered an original contractor pursuant to Missouri’s Mechanic’s Lien laws. But if your contract is with someone other than the property owner, then you are a subcontractor.
Original Contractor Notice.
Missouri’s lien statutes require that the original contractor, a person contracting directly with the owner (i.e., a general contractor), must give the owner a specific statutory notice prior to the beginning of the project and before any payments are made under the contract. The following language must be included in at least ten-point bold type in the contract:
NOTICE TO OWNER:
FAILURE OF THIS CONTRACTOR TO PAY THOSE PERSONS SUPPLYING MATERIAL OR SERVICES TO COMPLETE THIS CONTRACT CAN RESULT IN THE FILING OF A MECHANIC’S LIEN ON THE PROPERTY WHICH IS THE SUBJECT OF THIS CONTRACT PURSUANT TO CHAPTER 429, R.S. MO. TO AVOID THIS RESULT YOU MAY ASK THIS CONTRACTOR FOR “LIEN WAIVERS” FROM ALL PERSONS SUPPLYING MATERIAL OR SERVICES FOR THE WORK DESCRIBED IN THIS CONTRACT. FAILURE TO SECURE LIEN WAIVERS MAY RESULT IN YOUR PAYING FOR LABOR AND MATERIAL TWICE.
This notice must be provided in the original contract or prior to the time materials are first delivered to the project, the contractor first commences work on the project, or the first invoice is delivered.
The type of notice that a subcontractor must provide on a project turns on whether the project is residential owner occupied or non-owner occupied.
(A) Non-Residential or Non-Occupied Projects A subcontractor must give the owner notice of its intent to file a mechanic’s lien at least ten (10) days prior to filing the lien. As discussed below, a mechanic’s lien must be filed within six (6) months of the last work performed on, or materials furnished to, a project. The subcontractor must actually “serve” the notice of intent on the owner(s) “by any officer authorized by law to serve process in civil actions, or by any person who would be a competent witness.” There must be proof of personal service, either by an officer’s return that is endorsed or an affidavit of service by any other person. In certain circumstances, the subcontractor may be allowed to “serve” the owner by filing a copy of the notice of intent with the Recorder of Deeds for the County in which the property is located.
If a subcontractor fails to follow these notice requirements, it cannot file a mechanic’s lien against the property. For this reason, a subcontractor must carefully calculate its time in order to ensure that it can serve the notice of intent to file a mechanic’s lien at least ten (10) days prior to the date the time for the filing of the Statement of Mechanic’s Lien expires.
The notice of intent must contain certain information on the subcontractor’s claim, including the amount of claim and the identity of the original/general contractor.
(B) Residential Owner Occupied Projects For owner-occupied residential property of four units or less, a different notice is required. A subcontractor must obtain a “Consent of Owner” in order to protect its lien rights for remodeling, repairing or improving such property. “Owner occupied residential property” is residential property that the owner either currently occupies or intends to, and does occupy, as a residence within a reasonable time following completion of the project.
No lien claimant (except an original contractor) can file a mechanic’s lien against the property unless the owner, pursuant to a written contract, has agreed to be liable for such costs in the event that the general contract does not pay the subcontractor. This consent is in addition to the above-described Notice of Intent, and must be signed separately from that Notice. Additionally, the Consent of Owner must be printed in at least ten print bold type and contain the following words:
CONSENT OF OWNER:
CONSENT IS HEREBY GIVEN FOR FILING OF MECHANIC’S LIENS BY ANY PERSON WHO SUPPLIES MATERIALS OR SERVICES FOR THE WORK DESCRIBED IN THIS CONTRACT ON THE PROPERTY ON WHICH IT IS LOCATED IF THEY ARE NOT PAID.
If the subcontractor files a mechanic’s lien, this “Consent of Owner” must be attached to the lien statement. If a subcontractor is supplying materials or labor for repair, remodel, or an addition on an existing residential home, it should be aware of this statute and special precautions should be taken. The subcontractor should obtain the “Consent of Owner” from the owner of the project or request that the original/general contractor to whom the subcontractor is supplying work and/or materials obtain such consent from the owner.
STATEMENT OF MECHANIC’S LIEN
Missouri law draws no distinction between original/general contractors and subcontractors when it comes to computing the time in which a claimant must file its mechanic’s lien statement. A mechanic’s lien statement must be filed in the Circuit Court where the property is located within six (6) months after the indebtedness accrues. Missouri courts interpret the time in which the indebtedness accrues to mean the last date that work is performed on, or materials furnished to, the project. For materials supplied to the project, the last day furnished is typically the last date that materials were delivered.
A Mechanic’s Lien Statement must include the following:
(1) a just and true account of the amount due;
(2) a true description of the property, or so near as to identify the same;
(3) name of the owner;
(4) name of the lien claimant;
(5) name of the contractor (if lien statement is for subcontractor); and
(6) verification, under oath by the lien claimant or its agent, that the information in the lien statement is true and correct and that the lien claimant has satisfied all requirements for filing the lien (such as Notice of Intent or Consent of Owner).
LAWSUIT TO ENFORCE MECHANIC’S LIEN
Within six (6) months of filing the Mechanic’s Lien Statement, the lien claimant must file its lawsuit to enforce a mechanic’s lien. If the lawsuit is not filed, the mechanic’s lien expires. Under Missouri law, a contractor is only required to file the lawsuit against the property owner and any original/general contractor that may be involved with the project. However, as a practical matter, a contractor should name any person or entity who may claim an interest in the property.
The most common problems seen with mechanic’s lien lawsuits are (i) failure to accurately describe the property, (ii) failure to properly itemize the work performed or materials supplied, and (iii) failure to comply with the various time constraints set forth in the statutes. As mentioned earlier, because each situation differs and because courts strictly construe mechanic’s liens, professional legal advice from an attorney should always be considered.
EXECUTION ON A MECHANIC’S LIEN
Once the contractor obtains a Court Order and/or Judgment that validates the lien, a contractor may be entitled to force the property into a foreclosure sale. In addition, to the mechanic’s lien, the contractor is also entitled to a money judgment. As to the property owner, a money judgment may not be as advantageous as the lien but when an original/general contractor is involved, a money judgment allows the subcontractor to seek payment from either the property owner or the original/general contractor.
As initially discussed, this article provides a very brief and general overview of Missouri’s Mechanic’s Lien law and should not be relied upon as legal advice for your specific situation. There are numerous nuances within this area of the law that is beyond the scope of this article. For instance, what happens when the property is sold after work and/or materials are provided to the project but before the Statement of Mechanic’s Lien is filed? Or the impact of a property owner’s bankruptcy on the contractor’s right to assert a Mechanic’s Lien. These are questions for your attorney to answer.