This blog comes from a webinar presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida. We will be discussing how you can get paid after you record and lien, and what you need to do to increase the chances of getting paid on your construction liens.
Step 1: Verify you have lien rights
Those who can lien, include the following people:
- Laborers – Like John Smith the carpenter
- Architects, engineers, and land surveyors – Those who are rendering professional services
- Contractors (those in privity with the owner) – Under the lien law, this is not defined by the scope of work, but by those who have a direct contract with the owner.
- Subcontractors – Anyone who has a contract with a contractor.
- Material suppliers/rental companies to owners, contractors, subcontractors, and sub subcontractors. For example, I may be a shoring supplier and provide scaffolding and shoring on a project. If my contract is with the sub-subcontractor, I still have lien rights on that job. If I am a plumbing supply house and I have a contract with the sub-subcontractor and all I do is deliver materials, then I also have lien rights.
Anyone below these groups of people in the chain of contract do not have lien rights. And these people are:
- Material suppliers to material suppliers - So if there is a general contractor and they sell switchgear to the electrical supply house, and then they sell it to the subcontractor, the general contractor in my example doesn’t have lien rights because they are a material supplier to a material supplier.
So generally speaking, if you are in the top category of folks, then you have lien rights on the project that you are improving. Once it is verified that you have lien rights, you move on to step two.
Step 2: Comply with the Notice to Owner Rules
The next step is to comply with the Notice to Owner rules. Many are already familiar with these rules, but it never hurts to go over them again. You need to comply with the Notice to Owner requirements.
File your Notice to Owner well before the deadline
You need to serve a Notice to Owner no later than 45 days from your first work or delivery of materials on the project on all interested parties (including the general contractor).
For example, if I am the sub subcontractor on a project, not only does my Notice to Owner need to go to the owner, it needs to go to the general contractor as well.
The Notice to Owner must be received within 45 days
Forty-five days is the date it must be received, so you should do it much sooner. So if you put it in the mail on the 44th day, it is probably not going to get delivered on time. So it is recommended that you start that Notice to Owner process early. Typically once you execute a contract, you should start the notice process right then. Do not wait until you get close to your 45 days.
You Can Serve the Notice Before You Commence Work
The Notice to Owner can be served before you commence work. So you don’t have to work till you step foot on the job to serve your Notice to Owner. However, it must be after you have a contract for the work in order to perform it.
For example, if someone gives you a non-binding letter of intent and then you serve my Notice to Owner after you sign it, it is probably not a good Notice to Owner if you subsequently start work on the job. In contrast, if you sign a contract today and don’t show up on the job for three months, and then serve your Notice to Owner after you sign your contract, but before you show up on the job, that Notice to Owner is good.
Now if you provide what are called “specially fabricated materials,” – not meaning not special order, but specially fabricated materials, or materials that can only be used on that job, -
For example, if I make trusses for a house, once I start cutting that lumber in my warehouse for these trusses, and if I don’t use them on this house, I probably won’t be bale to use them anywhere else. So for something that is specially fabricated just for this one project and likely has no use aside from this project, the 45 days for the Notice to Owner for that work starts 45 days from the time you start to fabricate the material in your shop. So you may never deliver it to the jobsite, but the 45 days start in your shop.
The 45 days includes weekends and holidays
The 45 days start from the day after you step foot on the job. So if you start the job today, tomorrow is day one and you need to count every weekend and legal holiday in between. When you arrive at the 45th calendar day, and that day falls on a weekend, legal holiday, or holiday on which mail is not delivered, then my 45th day moves to the next business day.
When you don’t need to serve the NTO
If you have a direct contract with the property owner for your materials or services, you do not need to serve the Notice to Owner. Even though it is not required, it is highly recommended that you do serve the notice.
Step 3: Comply with the Claim of Lien Rules
Here is how to best comply with the Claim of Lien rules:
Record your Claim of Lien on time
You need to record your Claim of Lien within 90 days from your last work or delivery of materials to the project remembering of course, that the 90 days is not three months. Some months have more than 30 days and one has fewer than 90 days.
Count weekdays and holidays
If your last day on the job is today, you should start counting tomorrow (which becomes day 1). You start counting 90 days and if the last day falls on a weekend or legal holiday when the clerk is closed, then you need to roll it to the next business day. It is entirely possible that you could in certain circumstances have 93 days to record the lien.
You can record the lien before you finish work
As a collection tool, you can decide to still work on the job and record your lien now even if you are working every day. But recording the lien will let the other person know that you are not happy that you are not getting paid.
“Last work” doesn’t include punch list or warranty work
The last work is only work that is mentioned under your contract.
“Last work” does include approved change order work
Work that is performed pursuant to an approved change order.
Step 4: Comply with Other Lien Law Requirements
Ensure that you comply with all other lien law requirements. There are some others, but these are the ones that we run into on a very regular basis:
You May Need to Serve a Contractor’s Final Affidavit
If you are in privity (have a direct contract) with the property owner in addition to everything mentioned above, you need to do an additional step. Serve a Contractor’s Final Affidavit at least five days before you file a lawsuit to foreclose on a lien. This document is a very simple one and frankly simpler than the Claim of Lien.
It basically says that you are the contractor, you list who the owner is, you describe the project by its address, and you state how much money you are owed. You also need to list all of the unpaid vendors that potentially have lien rights and this needs to be served again no later than five days before you file a lawsuit to foreclose on your Claim of Lien.
Respond to all requests for Sworn Statements of Account
Now if you happen to have received a request for a Sworn Statement of Account during the course of the job, or after you liened, you need to make sure that you timely and properly respond to all requests for Sworn Statement of Account that you receive. Because if you do not and it was properly served and delivered to you, then you will lose your construction lien rights.
You may have valid and enforceable lien rights, you receive a request for a Sworn Statement if Account and you either don’t respond, respond improperly by not notarizing or including incorrect information, or you respond late by delivering it back after 30 days. This means that you will lose your lien rights.
Lien within 30 days of termination of the Notice of Commencement
If the Notice of Commencement has been terminated, then you do not have the 90 days to lien, you only have 30 days from the date of the termination of the Notice of Commencement. You will know that the notice is terminated via a written notice delivered by certified mail and delivered to you or the address that you have listed in your Notice to Owner.
Step 5: Foreclose on Your Lien (and other claims)
After verifying that your lien is proper and that it has been recorded, here is what you should do next:
File a civil lawsuit to foreclose
Now you need to file a civil lawsuit to foreclose on your Claim of Lien, and this needs to be done no later than one year from the recording date of the Claim of Lien.
Watch out for the shortening of this period
This period of time can be shortened. Via certified mail, you could receive what is called a Notice of Contest of Lien from the date that document is dated. It will have a clerk’s stamp on it, and from the date of that stamp, you have 60 calendar days to file your lawsuit to foreclose on your Claim on Lien. You no longer have a year; it has been shortened to 60 days.
There are other ways to shorten this period of time that the owner and contractor have. Another one is called a Summons to Show Cause. This reduces the time you have to file lawsuit to foreclose on your lien down to 20 days. Unlike the Notice of Contest which is handed to you or sent to you via certified mail, a summons is served upon you by the process sever or the sheriff.
It is a real lawsuit naming you as a defendant and now you have 20 days to file your Action to Foreclose on your Claim of Lien. If you miss either of these deadlines, like the Notice of Contest of Lien deadline or the Summons to Show Cause deadline, you will lose your lien rights, and your lien will automatically expire.
Do not wait to file
It is anyway not recommended that you wait a year. Good collection practice would dictate that within day 60 of your last work on the job, if you haven’t been paid, that is when you need to have a discussion in your office about putting a lien in place. Do not wait until the 70th or 80day to start the lien process.
Once you record your lien, you should actively be pursuing collection efforts through phone calls, emails, letters, or physically going to owner’s office to get paid. Tell them that you will not leave until you get a check. If you have made the business decision that you want to continue to pursue this claim and you are not making headway, this is when you should retain the services of a construction lawyer to pursue this civil lawsuit to foreclose on a lien.
You can also sue for other claims
An addition to suing for foreclosure of lien, you can sue for any other legal right that you have. For example, you may choose to sue the person that hired you for breach of contract. Maybe you do not have a contract with the owner and maybe you are a sub-subcontractor. But you know that the owner has not paid for the services yet. You can sue the owner for what is called unjust enrichment.
This means that you have rendered materials or services to the owner, and they are unjustly enriched because they haven’t paid for it. So they are liable to you for that amount. These are other legal claims that you can bring. There are many others that you and your lawyer can consider. But the most powerful tool in your arsenal, is definitely your ability to foreclose on your lien.
The process of the foreclosure
- It is a civil complaint meaning a complaint is prepared, a summons is used by the clerk and it is given to a processor to serve on the defendant. So, in this case if the owner does not respond, then you get what is called a default and a default judgment. This means that you win, and they lose automatically. They have 20 days from the day they are served to respond.
- Now if they respond on their own because the work permits it, or they hire a lawyer, they may decide to file what is called a Motion to Dismiss, saying that something in the papers that was given to them is not legally permissible. Or they may file an answer. If they are forced to respond, then the case will continue through what is the longest and typically most expensive part of the case.
- That is the discovery phase. There are interrogatories which are written questions that you send to the other side. They have to answer in writing and then they send you written question requests for production where the parties exchange documents and depositions where they come before you and your lawyer. The court reporter raises their right hand and they ask questions from two to eight hours. Anyone that has information can deposed. You may be deposed in the course of this collection process.
- Depending on the complexity of your case, you may need to get an expert. Preferably someone who will opine to the judge about certain issues in the case. Like whether the code was followed, whether the job was in fact delayed or not, any damages, and then you will have the trial.
- The trial is where the parties get together and it is the actual culmination of the litigation. Witnesses are called on the witness stand, the judge or jury hears the evidence, and they will render a decision on who is right or who is wrong. That entire process, if it goes through all the steps that are defined above, usually takes between eight and 16 months of time. And almost every case settles. It usually settles somewhere prior to trial.
Step 6: Conduct the Foreclosure Sale
Online public sale of property
The online public sale of the property will happen now. Let us assume that you have went through the case and you won. Now the judge says that you are entitled to foreclosure for a million dollars on the property. This means that you have a judgment for one million.
Bid up the price of the property
This property is put up in the online public sale and bidders can bid up the price of the property.
Your judgment bid is the equivalent of money
Your bid, meaning your judgment amount, is the equivalent of actual money. Meaning that you bid up to your judgment amount.
What happens if the final winning bid over your judgment
If the final winning bid is over your judgment amount of one million, meaning that if someone else from the public decided to show up online and buy the property, and they were willing to pay more than your judgment amount, then they will deposit that cash with the clerk. The clerk will then pay you out of those proceeds.
What happens if the final bid is under your judgment
Unfortunately if the final bid is under your judgment amount, this will result in you getting ownership of the property, which is probably not something that you are interested in.
You will have to deal with taxes, insurance and superior lien holders
Because if you take the property, then you take it subject to the taxes. It is a piece of property, and maybe it is not even completed. If someone walks on it and hurts themselves, they may sue you. So you also need insurance. And any superior lien holders like a first mortgage, a first mortgage and a second mortgage, or lienors that may have superior rights than you are not wiped out in this foreclosure process.
So as a result, they may foreclose you out and take ownership of the property from you. Now this may not sound great, but the reality is that most owners do not want to lose their property because they have a lot of equity in it. So if you are owed money on a project and you are going to foreclose out the owner, the owner is going to want to come up with the cash to pay you. Because what you are owed may be less than the equity that they will lose if they lose the property.
Once you take it from them, all of their equity and whatever they pay to get to that point is lost. It is all to your benefit subject to any prior liens, like a construction loan on the property.
Step 7: Pursue any deficiency
If not made whole, you can pursue the owner
Now if you don’t recover enough money to pay your judgment, you can pursue the owner or others for the remaining balance. So if you are still owed money and no one shows up to bid at the sale for whatever reason, you take the property, but you are still owed money. You can get what is called a deficiency judgment which is a piece of paper that says you pursue the owner for the remaining balance.
So you can garnish his or her bank account. If they have a plane, boat, cars, equipment, or an office with stuff in it that belongs to them. You can send the sheriff out to get it all and have a public sale of everything. This takes effort, legal fees, and costs money to do but it doesn’t mean that if you don’t make your money back in the foreclosure sale that you have no remedy. You still do.