This blog is part four in a series on Tennessee lien laws where we will give the basics of what the lien law structure looks like in Tennessee, understand it a little bit, understand some of the pitfalls, and some of the things that you need to be aware of.
Part 5: Bonding a Lien in TN
Part 8: Can You Lien for Tenant Work in TN?
Part 11: Other Rights – The TN Prompt Payment Act – Notice and Remedies
Where we will start today is what lien rights you generally have in Tennessee.
Recap: Tennessee Lien Law Basics
We previously spoke about how in Tennessee, there is a difference between remote contractors and prime contractors. A prime contractor is anyone that has a contract with an owner. A remote contractor is anyone who has a contract with anybody but the owner. There are different filing requirements for both.
b. For what work and on what property are lien rights valid?
Tennessee lets liens be filed and secure any payment for an improvement to real property including leaseholds as well as other property interests.
c. For how much are lien rights valid?
That lien is going to secure the contract price. It is not going to get interest and it is not going to get attorney’s fees.
So those are the basics of Tennessee lien law.
Now we go into how you actually preserve those rights. What steps do you have to take?
d. Steps for prime contractor and remote contractor to follow
You have to go through the prime contractor starting with the Notice of Lien and you have to perfect the lien which is Step 2 in the process. That is what we are going to discuss in this article.
On the remote contractor’s side, Step 1 is the Notice of Nonpayment. Then comes the Notice of Lien and finally, you have to perfect the lien. That perfection of lien is where the prime contractor and remote contractors come back together in a similar process.
Perfecting the Lien – 1. Timing
The first thing we will talk about in this blog is perfecting the lien. You may think that it sounds like a fancy word, but what is perfecting the lien? Perfecting the lien has multiple parts. Generally, most people think of this at the time to file the lawsuit. It is a little bit more nuanced than that though.
First, we will talk about timing. When do you have to perfect the lien?
a. Prime contractor
You have to perfect a lien as a prime contractor within one year of completion or abandonment.
b. Remote contractor
As a remote contractor it is a little easier. It is 90 days from the Notice of Lien, so it is easier to count.
c. You have to be cognizant
Now, you have to be cognizant of the fact that you do not have to file a lawsuit as a prime contractor for a year. You do not have to file a lawsuit as a remote contractor for 90 days from the time that you put down your Notice of Lien. But you have to be aware of some things.
i. Deemed abandonment
If you are on a project that stalls, meaning that there is no work being done on the project for 90 days, you typically see this in a situation where you have problems with city permits, funding issues, or if a project is at a complete standstill for more than 90 days.
You have to be aware under Tennessee lien law, that is going to be deemed abandonment as of Day 1 not Day 91. So, if you are sitting on a project that you have done some work on but has been completely stalled, you need to think about your lien rights.
Because if you are a remote contractor and the job has been stalled for 92 days, you may already be out of time to proceed with multiple steps. As a remote contractor particularly, that Notice of Lien has to go first. The deemed abandonment language also applies to the prime contractor in the context of perfecting the time to perfect the lien.
So, just be aware that this is an issue if you have a big pause on a project.
ii. Warranty or punch work
The other thing you have to be aware of when you are looking at these back-ending lien deadlines is when the last day of work was. The response from most lienors is that they had a guy out there last week. But the thing to be cautious about here is that there are a number of cases in Tennessee that essentially say if you are out there doing warranty work or final punch items, you may be past what was thought of as completion.
The cases are not crystal clear, but they seem to go towards the concept of a more substantial completion-type concept rather than final completion concept. It is a little squishy in what the judiciary is doing with it. That said, be aware. And when you are counting lien deadlines be conservative.
If you get a substantial completion date, use that as the date that you calendar off for when you both have to record your lien, if you are a remote contractor. And it is when you have to file and perfect the lien, and file lawsuit if you are the prime contractor.
iii. Lien enforcement demand
The other thing is the lien enforcement demand. Prime contractors and remote contractors who have served a Notice of Nonpayment are going to receive a notice if someone wants to limit the time in which a party can perfect their lien.
And what this statute does is, once you record a Notice of Lien, it gives the party that either owns the property or upstream, privity of the lien or the ability to cut off the time period in which to actually perfect the lien attachment and lawsuit.
So if you receive a notice like this and you have a lien down know that the 90 days and one year mentioned above may not be accurate. In fact it probably will not be accurate, it will probably be limited to 60 days from the time you receive the notice.
Notice of Completion
The other notice is the Notice of Completion. You have to be aware of this because it will shorten the time frame to 10 days on a residential project and 30 days on a commercial project. Again, if you have a problem, you need to consider whether or not you really want to wait the full one year or the full 90 days to file a lawsuit.
There are all these deadlines out there, but you may not want to wait the whole time because there are a number of factors that are also going on in the background. They could be cutting off your lien rights particularly if you miss a notice that comes in.
Perfecting the Lien – 2. Attachment
Now we will talk a little bit more about how to perfect your lien. To think about liens, you have to take a step back and ask what exactly you do. The whole purpose of a lien, particularly in Tennessee or elsewhere is you want to take the property and make sure that the property you have improved can be sold to pay you for the improvements you make.
The way that happens ultimately, is through an auction. So, instead of suing someone and saying that you are owed money, you are saying that you are going to take their property and get paid from selling that property.
So that is the concept of the lien and to do that Tennessee has what is considered an attachment or a writ of attachment process that ultimately ends in the sale of a property. The attachment takes and gives the court control of the property so the court can sell it if you are successful in the lawsuit. So this attachment step is the first thing that is necessary
a. § 66-11-126. Enforcement Methods; exception
This section is the statutory language, and the statutory language is all built on seeking the issuance of attachment. Now this gets pretty technical and it is one of those areas where if you have a bigger lien, council can help you out. But the key is that the lawsuits out of this or the third step of perfecting a lien all start with this attachment.
There is some unique language in this statute regarding attachment. It used to be that if the property was not actually attached within the time periods discussed above, like 90 days for the remote and one year for the prime, the lien was no good regardless of if you filed a lawsuit. That has changed based on a case in the section of Tennessee’s lien law.
That is what you see below in number 3 in the very last sentence. As long as you are going forward and have given the court what they need or what the clerk needs, to issue the attachment, that is enough to comply with the timing requirement.
Now there is one rub when you start talking about this attachment. What you have to give the clerk is an open question.
b. What does a writ of attachment look like in Tennessee?
The one used in Davidson County looks as follows.
What this is doing is making you put down the information about the property so that the sheriff can go serve the attachment and actually get the property within the control of the court. What does that practically mean? Practically it means giving someone a piece of paper or stapling the writ on the property. There are a couple of other ways to do it too.
But the form above is what it looks like. It has to be filled out and submitted to the clerk with the lawsuit to enable the court to move forward. Now that is part of the equation on the attachment.
c. § 66-11-126. Enforcement methods; exception
The other part of the equation on the attachment is if you are going to take an interest in someone’s property, and try to perfect it, particularly to put it in the jurisdiction of the court, you have to put a little skin in the game yourself. And what is required in Tennessee is an attachment bond. That is a $1,000 bond or for larger liens, it can be increased substantially.
That is going to require some effort on the other side. You can start with a $1,000 lien. The question that remains open is whether or not a party that fills out a writ of attachment but does not provide a bond is timely or is not timely under the Tennessee 90-Day and one-year statute.
Our advice is that if you are going to go to the step of perfecting the lien, and filling out the writ of attachment, make sure that the bond in conformance with what you see in the statute above, is submitted to the clerk at the same time that you submit the writ of attachment and the lawsuit.
Perfecting the Lien – 3. The Lawsuit
That now moves us to the lawsuit. The main section of the statute is below:
Like many things in the lien laws, there is a separate section for prime contractors and remote contractors. What we will first call your attention to is in reality, the language is exactly the same for prime contractors and remote contractors. The remote contractor just has a little additional language about what you can do with parties that sit between the remote contractor and the owner of the property.
But the big takeaway from the statute above is that remote contractors and prime contractors are under the same obligation when it comes to filing the lawsuit.
a. Which court?
Now, in Tennessee the court system is a little bit different than some other states. So we start at where you have to file the lawsuit. In Tennessee, there are circuit courts and chancery courts. Both are general jurisdiction.
i. Circuit courts
Circuit courts handle everything, including in most cases, criminal dockets. That is not true in some counties but generally speaking, a circuit court is also going to have a criminal docket. It is also going to be the appeals court for a number of the lower courts that are not considered court of record. That is going to be general sessions.
Some of your municipal courts and juvenile courts are all coming up through the circuit. Think of the circuit as having to deal with everything. In that vein, some of your circuit court judges are sometimes not going to get very excited about a civil lien. That can be good or bad.
ii. Chancery courts
The chancery court essentially has the same jurisdiction on the civil side as the circuit court. Historically, there were certain things you had to put in chancery and certain things you had to put in in circuit. Now most of that is all blended together, so you can put a lien perfection action in either circuit court or chancery court.
One thing you do not see in chancery court is the criminal docket. So be aware that chancery courts may be more in tune to a civil lawsuit involving the professional lien. It is more what they do on a day-to-day basis. Again, whether that is good or bad for you depends on the specific circumstances of the lien you were trying to enforce.
iii. General Sessions court
The other option is the general sessions court. A lot of people call the General Sessions Court in Tennessee the small claims court. It is an option for a lien perfection action if the lien is less than $25,000. What we will caution you on as far as the General Sessions Court is if it is a disputed matter, you can get a decision in General Sessions Court, but you are still going to have to enforce it in a quarter record being a circuit or chancery court.
So even if you go get a judgment in general sessions, you still have to go up before you can have the property sold. General Sessions Court does not actually sell the property. Now the other wrinkle there is even if you get a judgment in general sessions, if it is a disputed matter, you start over at square one if either party wants to appeal the judgment.
There is not a lot of procedure in General Sessions Court, but we will tell you that General Sessions Court is quick justice. If two sides are at odds about a low number, and you are one of the sides that had to perfect a lien, and you are suing on that lien, then sometimes at a number under $25,000 it makes sense for quick justice. And the General Sessions Court is an option there.
You are not required to have, and many people do not have counsel in the general sessions. If you are an entity you are going to need it wherever you are. But that said, General Sessions Court is a good alternative for small liens.
Any of them work under the lien statute. If you are going to general sessions you do need to check back, because there is a specific statute in Tennessee about what you have file in the circuit court or chancery court if you are going to general sessions. So there is just some additional notice requirements.
Now the other thing we will tell you as far as which court, is you have to also consider that Tennessee has a statute which allows you to jump into a case if someone else is already trying to perfect a lien on a certain piece of property that you are also trying to lien.
If there is an ongoing case you can just jump into that case. It also says that if there are multiple cases, all of them are required to be consolidated at one point. So, if there is a case, there are a lot of reasons to join that case including that the attachment procedure is not necessarily required if it is properly done by the first party of the lawsuit.
It is a little technical and a little legalese, but it is important to know when you need to file a lawsuit perfectly.
b. Against whom?
Now who do you need to put in the lawsuit, who needs to be a defendant? Well, you are not suing individual people with a lien perfection action, you are actually suing the property and trying to get clear title to that property. The only way you get a clear title to the property is if anyone who has an interest in the property is named as a defendant.
You have to think really broadly about the statute that we spoke about earlier in this blog, about what has to be done as the perfection of lien has this language of person or persons whose interests the prime contractor seeks to attach and sell. So, anyone with an interest in that property, you need to consider naming. And there are a couple of reasons for that.
i. Lenders with an interest in the property
Number one is if you have lenders that have an interest in the property, you have to decide whether that lender is going to get the money from the sale of the property or whether it is going to go to the lienor. All that depends on priority.
ii. Other lienors with liens on the property
Number two is if there is anyone else with liens on the property, you are going to have to determine priority in between the lienors and you can only do that if all the lienors are in the same lawsuit and named.
iii. Anyone with leasehold interest
Number three is if you have people with a leasehold interest. If you only name the lessee then the best you are going to get from a lien enforcement action is the sale of the leasehold estate, not the sale of the underlying property.
So, all of that said, think broadly when you are thinking of who you have to sue. This is all consistent with what we discussed earlier with a number of the sections of the lien statute that require notice to the owner.
The definition of an owner is as follows:
The owner is extremely broadly defined as anyone with any interest in the property whatsoever. So again, the requirement is the person or persons whose interests the prime contractor seeks to attach and sell. That is the black letter law as to whom you have to include in the lawsuit. But think broadly; think definition of owner here; think of anybody that you need to get involved in the lawsuit to make sure that the title is clean when it sells.
The reason for this is because the cleaner the title, the more money you can raise at a sale, the more money you raise in the sale, the more likely that you get paid on the lien that you are trying to perfect.
c. Including what?
Now, what do you have to include in the lawsuit? Well, first of all, if you get to this point you can go by yourself.
i. Notice pleading standard in Tennessee
We would strongly suggest counsel but if you go by yourself there is good news in the sense that Tennessee follows a liberal notice pleading standard, meaning that you do not have to put everything out there and it does not have to be perfect. But there are some things that are required particularly in a lien setting.
Set forth the facts
The statute requires you to set forth the basic facts. What is really required is that there is enough of a description the court can see. There is a contract whether that is oral or written. It should mention that the contract involved an improvement and that you have dates in there that show you complied with all the different timing mechanisms, and for remote contractors that the Notices of Nonpayment were complied with.
So you have to have a very basic description that allows the court to see that as the lienor is trying to perfect the lien, you are at least saying that those items have been complied with along the way.
Description of the real property
There is not necessarily the need for a strict legal description. The lien statutes let you rely on what is in the building permit. Typically, a street address will be enough and should be enough in the vast majority of cases. If you have a legal description, it is always good to have that in the Notice of Lien. You may as well attach that to your lawsuit just so you do not have any trouble with describing the real property.
Prayer for relief for sale of the property
The other thing you need is a prayer for relief at the end asking the court for what you really want. That is a sale of the property with the proceeds directed first to you to cover any lien amount that you prove is owed.
Filed under oath
Finally, and this gets a lot of people, you have to file a lien perfection action under oath. This is what is called a verified complaint. It is typically not required for a garden variety lawsuit. For a lien perfection action, you actually need somebody who can swear that the details included in the complaint are true and correct. Then you need to put that under oath at the bottom in the verified complaint.
This is something that a number of people overlook and forget whether a court will allow that to be cured if it is not done initially, and not done after a timing. The time, whether that is 90 days to one year, is an open question. Do not be the one figuring out which way the court is going to go. If you are putting the lawsuit together and you are taking the time to perfect all your rights, make sure that when you file the lawsuit it is filed under oath.
While we are talking about all this to perfect the lien and filing it under oath, it does not mean that you are foreclosed from pursuing other causes of action that you want to be in the lawsuit. You can put whatever you want in there and you can plead an alternative to your lien claims.
The fact is just that you have to be a little bit more careful when you are dealing with what else you can put in a lien lawsuit and the reason we tell you that is because of the oath requirement. Because you are going to have to verify that what is in the lawsuit is true and accurate from an individual’s standpoint. And they are going to have to verify that anything else that is in there is true and accurate.
Sometimes when you are pleading an alternative, it is very hard to marry those two concepts together.