Construction Lien law is largely governed by state law. There are a variety of different laws across the nation. What works in one place frequently does not work in another. In some states notices must be given before beginning work. In others you can’t provide notice until a later time period.
Mechanic’s and Materialmen Liens: Getting Paid.
This outline is very brief and does not include provisions concerning public works contracts under the US Miller Act or the Alaska statutes. It also does not address any statutory changes subsequent to the author date. It also does not address any issues with respect to court interpretation. We are providing this general information so that you can learn about the how to protect your business. It is important to seek counsel within ninety days of job completion when you have not been paid. The most important take away is time. You only have 120 days from last working on the property to assert your lien. You only have six months to sue on the lien claim unless you extend it. The time period was 90 days. The deadline was extended by statute effective September 7, 2010. These rights are among the post powerful collection tools at a contractor’s disposal. The following pages address twelve significant aspects of construction lien enforcement.
Who can claim a Construction Lien? (Alaska Stat. 34.35.050)
Those performing labor on real property at the request of the owner or, their agent, for the construction, alteration or repair of a building or improvement.
- The trustee of an employee benefit trust for the benefit of the people performing in section a.
- Those furnishing materials delivered to and used upon the real property under a contract with the owner, or their agent, for the construction, alteration or repair of a building or improvement.
- Those furnishing equipment that was delivered to and used upon real property under a contract with the owner or the agent of the owner for the construction, alteration or repair of a building or improvement.
- Those performing services under a contract with the owner or the agent of the owner in connection with the preparation of plans, surveys, or architectural or engineering plans or drawings for the construction, alteration, or repair of a building or improvement, whether or not actually implemented on that property.
- A general contractor.
What land is subject to the Construction Lien? (Alaska Stat. 34.35.055)
- The land upon which a building or other improvement described above, together with a convenient space about the building or improvement as is required for the convenient use of the property.
- If the person owns less than a fee simple interest, only that person’s interest is liened.
- If the owner was only a tenant and they forfeited possession, the lienor can protect their interest by paying all arrears of rent and money required under the lease.
- If the landlord regains possession before commencement of the construction, alteration or repair the lien is only protected by the right to remove the improvement within 30 days after the purchase and the landlord gets first recovery of the sale of removed goods to satisfy unpaid rent until the date of removal.
Which Construction Lien gets paid first: Priorities? (Alaska Stat. 34.35.060)
- Generally, liens recorded first get paid first.
- A recorded notice of right to claim a lien takes priority over later recorded liens.
- Liens in favor of workers performing labor or a trustee of an employee benefit trust take first priority position, even over prior recorded liens; but, only for “original construction.”
The Stop-Lending Notice. (Alaska Stat. 34.35.062)
a. If you are entitled to a lien and your bill is past due, you may issue the lender a Stop-Lending notice. The notice must concurrently be given to the owner and each prime contractor with whom or through whom you have contracted.
b. The Stop-Lending notice must state:
(1) to instruct the lender to stop disbursing, advancing, or otherwise providing construction financing for the project;
(2) the claimant must verify the factual statements;
(3) the claimant’s name, address and telephone number;
(4) the description of the labor, material, service, or equipment furnished by the claimant and state the name of the person to whom furnished;
(5) the description of the real property improved by the labor, material, service, or equipment and state the name of the person the claimant believes to be the owner of the real property; and
(6) the amount due and unpaid to the claimant for the labor, material, service or equipment.
c. The Stop-Lending notice lasts only 91 days from the date the lender receives the notice unless you file a suit on the claim. You may revoke the Stop-Lending Notice. Failure to file suit timely or revocation of the Stop-Lending notice terminates the lender’s liability.
d. Lenders that disburse, advance or otherwise provide financing for the project after receiving the stop-notice is liable to the lienor for the lesser of:
(1) The amount of money subsequently disbursed. If there are multiple stop notices outstanding when funds are disbursed the proceeds are applied in order of the priority rules.
(2) The amount owed to the lienor including interest, costs, and attorneys fees for labor, material, service or equipment furnished for the project by the claimant as established by a written agreement signed on or after the date of the stop-lending notice, by the claimant, owner and prime contracted; or by a court judgment in a suit by the lienor against the owner, the claimant and the claimants debtors were named and served.
(3) 150% of the amount in the stop lending notice.
What is the Contractor’s Notice of Right to Lien. (Alaska Stat. 34.35.064).
a. The notice of right to lien must be given in writing to the owner before commencing work under the contract. If you give this notice then the owner bears the burden of proving that they did not know of or consent to your contract. Without this notice you bear the burden of proving the owner knew and consented to the contract.
b. The notice must provide all of the following information:
(1) a legal description of the real property;
(2) the name of the owner;
(3) the name and address of the potential leinor;
(4) the name and address of the party with whom the potential leinor contracted;
(5) a general description of the labor, materials, services, or equipment to be provided;
(6) a statement that you may be entitled to record a claim of lien; and
(7) “WARNING: Unless provision is made for payment of sums that may be due to the undersigned, your above property may be subject to foreclosure to satisfy those sums even though you may pay a prime contractor or other person for the labor, material, service or equipment furnished by the undersigned.”
c. The owner, lender or prime contractor that receives the notice of right to claim a lien may request disclosure of the amounts owed and anticipated to be owed under the contract along with a description of the services and materials provided under the contract. This request must be responded to within five days.
d. If you record your notice of right to claim a lien, the recording date will become the date for your lien claim priority if one arises subsequently. Alaska Stat. 34.35.067 and 34.35.060.
Contractor’s Liens are Powerful: What about Protecting innocent owners of land. Alaska Stat. 34.35.065.
a. The owner must have knowledge of the construction for the lien to attach.
b. An owner with knowledge of the construction has three days from learning of the construction to issue a Notice of Nonresponsibility.
c. The Notice of Nonresponsibility must be posted on the property in a conspicuous place and recorded in the deed records. The notice must be signed by the owner and two witnesses or the owner before a notary. The posting of the property must be attested to by a witness.
How soon must the Contractor claim their lien? (Alaska Stat. 34.35.068).
a. If the owner does not record a notice of completion, the lien claim must be recorded not later than 120 days after the claimant completes:
(1) the contract; or
(2) ceases to furnish labor, material, services or equipment for the construction, alteration, or repair of the owners property.
b. If the owner does record a notice of completion, the lien claim must be recorded, The following must record within not later than 15 days after the notice of completion was recorded:
A. if you received advance notice of the date the notice of completion would be recorded; or
B. you failed to provide notice of right to claim a lien under Alaska Stat. 34.35.064.
(2) The following must record within the time under the rules of part a:
A. claimants that record their notice of right to lien before or within the period; or
B. claimants that record a notice of right to lien but did not receive advance notice that completion was to be recorded.
What has to be in the Contractor’s Lien Claim. (Alaska Stat. 34.35.070).
a. The lien must be verified by oath of the claimant or person having knowledge of the facts and state:
(1). the legal description of the real property subject to the lien;
(2) the name of the owner;
(3) the name and address of the claimant;
(4) the name and address of the person with whom you contracted;
(5) a general description of the labor, materials, services or equipment furnished for the construction, alteration, or repair and the contract price of the labor materials, services and equipment;
(6) the amount due for each category in (5); and
(7) the date of last services rendered.
b. Risks for improper notices:
(1) Verification of the facts is necessary and mere authentication is insufficient.
(2) You must give due credit for all just credits and offsets or you will lose the lien claim on the remaining balance.
(3) Inclusion of improper items voids the lien. For example there is no right to claim a lien for transportation costs.
(4) Failure to name all owners exempts the unnamed owners interest from the lien.
(5) A violation of the claim of lien section makes the violator a guarantor regarding any damages another person suffers that are caused by the violation.
(6) If you are not successful on all counts of your lien suit, you may not be entitled to costs or attorneys fees and the successful defenders may offset their costs and attorneys fees against your claim. See, e.g., Brand v. First Fed. Sav. & Loan Ass’n, 478 P.2d 829 (Alaska 1970).
Contractors need to Watch Our for: The Notice of Completion. (Alaska Stat. 34.35.071)
a. The owner should give at least five days notice to claimants that have given a notice of right to lien or stop-lending notice to the owner and at least ten days notice to the lender.
b. The notice must be signed and verified by the owner and state:
(1) the date of completion;
(2) the name and address of the owner;
(3) the nature of the interest or estate of the owner;
(4) the legal description of the property sufficient for identification; and
(5) the name of the general contractor.
c. Notices of completion before actual completion have no effect.
d. Services provided after the notice of completion is recorded, if for warranty obligations, remedy of defective or unsatisfactory construction, alteration or repairs for which no additional consideration is owed, do not give rise to lien rights.
Contractor’s Lien: How Long Does the Lien Provide Protection? (Alaska Stat. 34.35.080)
a. The lien only lasts 6 months from the date of recording unless you file a suit or file an extension within the original 6 months that refers to the prior recorded lien notice by date, book, page or instrument on the original lien and the balance owing.
b. Buyers for value without notice of your lien suit take free of your lien. To protect your claim you must file a lis pendens that conforms with the requirements of Alaska Stat. 09.45.940.
The Contractor’s Action to Enforce the Lien – Foreclosure. (Alaska Stat. 34.35.110)
a. The action must be brought in superior court.
b. The lienor is entitled to the claim, costs of recording, filing and reasonable attorneys fees.
c. All persons personally liable and all lienholders whose claims have been filed for record under A.S. 34.35.070 shall be made parties.
d. The priority of claims from the proceeds of a foreclosure sale are:
(1) persons other than prime contractors that provide labor under Alaska Stat. 34.35.050(1);
(2) trustees of employment benefit trusts for persons described in (1);
(3) all other material men and subcontractors;
(4) claims under Alaska Stat. 34.35.050(5) and prime contractors other than the general contractor; and
(5) the general contractor.
e. All claims of a given class shall be paid before claims of a lesser class. Claims of a class shall either be paid in full or pro rata if insufficient funds are available.
Contractor’s Waiver of Lien rights. (Alaska Stat. 34.35.117)
a. An individual may not waive their lien rights before performing the work and the attempt to do so is void.
b. A written waiver by all other claimants is valid and binding, even without consideration. But, the waiver cannot relate to any events subsequent to the date of the waiver.
Conclusion: Contractor’s Liens
Contractor’s and supplier’s liens are powerful tools to collect money that is due to your firm. One of the most important keys to enforcement is time. You have to act fast to enforce these rights. You should seek counsel to assist you in the preparation and assertion of these rights.