In this blog, presented by SunRay Construction Solutions and Stephen D. Marso, Attorney at Law, Whitfield & Eddy, P.L.C. you will learn about mechanics lien in Iowa, specifically about the requirements related to residential projects and commercial projects.
The first thing that we will discuss is Iowa Code Sections on definitions. The Iowa lien laws (Iowa Code Section 572.1) are purely statutory lien which means that any rights, issues, etc., are governed by the statute. So here are some key definitions to take note of:
- One of the terms defined under Iowa Code Section 572/1(10) is the term ‘residential construction’. It is defined as, “construction on single-family or two-family dwellings occupied or used, or intended to be occupied or used, primarily for residential purposes, and includes real property pursuant to chapter 499B.” Chapter 499B typically deals with condominiums and apartments.
- “Non-residential construction” or “commercial construction” is not separately defined in the statute. So, everything else that does not fall under the definition of a residential construction is considered as non-residential or commercial construction.
Common Requirements for Commercial and Residential Projects
When it comes to requirements, there are some requirements which are common, irrespective of whether you are working on a residential construction or a commercial one. Some of these common requirements include:
a. Deadline to Post a Lien
Many construction professionals think that the deadline to post a lien is within 90 days from your last day of work. But technically, this is not true. As per Iowa Code Section 572.9, “the state of account required by section 572.8 shall be posted by a general contractor or subcontractor within two years and ninety days after the date on which the last of the material was furnished or the last of the labor was performed.”
So, even if you have passed the 90-day deadline, you can still file your lien; however, the best practice is to file it within 90 days.
b. Liens Posted After 90 Days
So, what happens if you are beyond the 90 days? Technically, if you file the lien within 90 days, you do not have to serve the lien on the owner or the owner builder. But if you are beyond 90 days, then as per the statute, the lien is enforced only to the extent of the balance that is due from the owner to the general contractor or the owner builder, at the time the notice is served to the owner or the owner builder.
So, if you are beyond the 90 days and you don’t serve the owner or the owner builder with the lien, then technically you have not perfected your lien. If the owner pays the general contractor in full during the period when you have not served the lien, then your lien is of no value.
The best practice is to serve the lien to the owner even if you are within the 90 days because in case you are beyond 90 days then you will still have perfected your lien.
c. Limitations Period to File Lawsuit to Foreclose Lien
Once you have filed a lien, what is the deadline to file a lawsuit to foreclose the lien? Well, it is the same two years and 90 days. So, the deadline to file your lien and file your lawsuit to foreclose your lien is the same.
Requirements for Commercial Projects Only
There are also some differences in the requirements for commercial and residential projects. Below is one of the key requirements specific to commercial projects.
Firstly, the notice provision is applicable for lower tier subs, i.e., people or companies furnishing work to a subcontractor. It does not apply to a subcontractor who has a contract with the general contractor. It is a simple one-time notice which has to be in writing, and it has to go to the general contractor.
The Notice will typically consist of the name, mailing address, and telephone number of the person furnishing the labor or materials, and the name, mailing address and telephone number of the subcontractor to whom the labor or materials were furnished. A key consideration about this Notice provision is its deadline, which is 30 days from the first date of furnishing work. If you fail to provide this upfront notice as per the deadline, then you will not have any lien rights.
Another thing that you will need to do if you fall under this requirement is that when you file your lien, you will need to put a statement certifying that you provided this notice. Now, if you did not provide the Notice, then do not certify that you did it because you will then open yourself up to claim fraud by making a false statement in the lien.
So, if you are a party who is defending against the lien, then this is one of the first things that you will want to find out whether the Notice was sent or not. Because if they haven’t, then you will have a solid defense.
Requirements for Residential Projects Only
For residential projects, there are quite a few notice requirements that you need to fulfill. Also, you need to keep in mind that the statute has been created to protect the homeowners. Here are some of the key requirements specific to residential projects only.
a. General Contractor Notice to Owner
First off, you must ensure that you are including the specific language in the Notice to Owner as per Iowa Code Section 572.13, which states that, “a general contractor who has contracted or will contract with a subcontractor to provide labor or furnish materials for the property shall provide the owner with the following owner notice in writing in boldface type of a minimum size of ten points.”
The Notice will have to include the internet site address and toll-free telephone number of the mechanics’ notice and lien registry. You can find these details on Iowa Secretary of State’s website which has the registry where everything related to mechanics lien is filed.
One of the easiest ways to do this is to include the notice language, internet site address, and telephone number in your written contract with the owner. So, if you use a standard contract form, include these details in it because if you fail provide this Notice to Owner, then you will not have any lien rights.
b. Notice of Commencement
This notice requirement also applies to the general contractor, and it is not something you will put in your contract or send separately to the owner. What you need to do is go to the Secretary of State’s website and fill a form related to this Notice of Commencement. The deadline for the Notice of Commencement is within 10 days of commencing the work on the property. It is a really short deadline, so make sure that you do not miss it as you can lose your lien rights.
Now, if you are a subcontractor and the general contractor has failed to post the Notice of Commencement, what do you do? Technically, you can also post it because the requirement is one Notice of Commencement for the entire project. So, as a subcontractor, you must check whether the Notice of Commencement has been posted or not, and if it is not, then you have to go ahead and do it. The 10-day deadline is not applicable for subcontractors.
Apart from posting the Notice of Commencement, the general contractor or the sub also has to send this notice to the owner’s address. If the owner’s address is different than the project address, then you need to send it to the address where the owner is located. If the project also has an address listed post authorship, then you need to send it there as well.
c. Preliminary Notice by Subcontractor
So, the preliminary notice is a notice requirement for subcontractors only and not the general contractor. The subcontractor will have to post this notice on the Secretary of State’s website on the mechanics lien registry. You will find a form there and you will have to fill in all the required details.
This notice also has a provision which states that your lien is only enforceable to the extent of the balance due at the time you post the notice, and it is enforceable only to the extent that the owner receives the notice.
So, the best practice to follow is to first check if the Notice of Commencement has been filed. If not, then you go ahead and file it and then file your preliminary notice and personally serve it to the owner or mail it to all the addresses of the owner.
If the subcontractor fails to post the preliminary notice, then they are not entitled to a lien.
d. Prompt Payment to Subcontractors
Many people don’t realize this, but the lien statute has a prompt payment to subcontractor provision, and this is specific only to residential projects. As per this statute, if the general contractor receives the money from the owner but fails to pay the subcontractor within 30 days after receiving the full payment from the owner, then the subcontractor can give a notice demanding payment.
If the payment is still not made, then they can go ahead and sue. If you are successful, then you get an amount which is not less than 1% or more than 15% of the due amount. A general contractor can avoid this penalty, if they fulfill one or both of the following:
i. Establishes that all proceeds received from the person making the payment have been applied to the cost of labor or material furnished for the improvement.
ii. Withing 15 days after receiving notice of nonpayment, the general contractor or owner-builder gives a bond in an amount not less than the amount necessary to satisfy the nonpayment for which the notice has been given.
a. Commercial Projects
The Iowa Code Section 572.31(1) says that “in a court action to enforce a mechanics lien, or an action brought upon any bond given in lieu thereof, a prevailing plaintiff may be awarded reasonable attorney fees.” So, the key takeaway here is that you will be awarded reasonable attorney fees only if you are the prevailing party.
b. Residential Projects
If you are working on a residential project, then it allows the person who is challenging the lien to obtain the attorney fees. What it means is that in residential projects, the attorney fees can be awarded to the claimant or the person defending against the lien. So, it’s a two-way process in residential projects.
If the lien was filed in bad faith, then you can get a penalty in addition to the attorney fees.
As you can see, it is very important to follow the requirements that are specific to your type of construction project to ensure that you have a valid mechanics lien. Any incorrect information or missing out on deadlines can result in serious consequences where you may end up with no lien rights at all.