In this blog, presented by SunRay Construction Solutions and J. Don Overton, Founder and President, The Overton Firm, you will learn in detail about key information that lien claimants should be aware of once they record their lien which in turn will ensure that they are successfully paid.
Assignment of Liens
The lien process in Arkansas is quite complicated, so you must be aware of all the rules and requirements. The first thing that we will talk about in this blog is the assignment of liens which is something that not many construction professionals are aware of. So, the assignment of liens means that in Arkansas, mechanics lien and construction liens can be transferred or assigned to a third party. What this means is that you can sell the lien to a third-party. Couple of rules and requirements that you need to follow for this include:
a. Give the notice of assignment of lien to the owner of the ground or buildings within 30 days of the assignment.
b. The notice will be deemed as served to the owner of the ground or buildings only if the copy of the assignment is:
i. Hand delivered to the owner of the ground or buildings
ii. Mailed to the last known address of the owner of the ground or buildings with a return receipt signed by the address or the agent of the addresses
iii. Returned envelop, postal document, or an affidavit by a postal employee
iv. Delivered through any other means that provides written, third-party verification of delivery
Another topic that subcontractors and suppliers are quite aware of is factoring. These factoring companies essentially buy your receivables, and the same company will also buy your liens. Although you may not receive 100% value for it, you can get anywhere between 60-70% of the value.
This is another great option to explore when thinking about how to get paid for your lien. Again, this is not an option that many people are aware of, but it is always better to receive 70% today than to receive 100% in the next 2-3 years.
For contractors, subcontractors, and suppliers already dealing with non-payment issues, it is frustrating when you must shell out more money to hire an attorney. This means that you are already unpaid, and you need to dig into your pockets to pay the attorney as well.
As per the statute 18-44-128, there is a provision which states that if a contractor, subcontractor, or supplier has filed a lien following all the procedures, they have a given a notice to the owner of the property, the claim has not been paid within 20 days from the date of service of the notice, and they need to file for foreclosure, then the Court will allow the reimbursement of a reasonable attorney’s fee in addition to other relief that the claimant is entitled to. This way you can ensure that you are not simply throwing away your good money after bad.
However, the opposite of this is true as well. This means that if the lien claimant has not followed all the requirements, or there is any defect, or if the lien is not deemed to be valid, then the owner is considered as the prevailing party and the court will award the reasonable attorney’s fees to the owner.
Now, when we say successful contractor, what does it mean? As per the CJ Bldg. Corp v. TRAC-10 case of 2007, says that there can be only one prevailing party in an action to recover a monetary judgment. This case reinforces the 1995 Gill v. Transcriptions, Inc. case that while each side may score a point, the one with the most points at the end of the contest is the winner and is entitled to recover.
For example, if you have filed a lien for $100,000 of which you have received $60,000 and $40,000 is offset, then you are the prevailing party because you have more points. Similarly, even if the other side gets a reduction of $49,000 and you get $51,000, you have got the most points, thus, making you the prevalent party.
This is important because as the prevailing party, you are entitled to get your attorney’s fees reimbursed which is a huge benefit.
Limitation of Actions and Parties to Suit
A) Limitation of Actions (§ 18-44-119)
When you approach an attorney, they will typically ask you questions like how much they must file the lien, how long is the lien good for, etc. Let’s say you have already filed the lien properly and it is available in the records, then you have 15 months after filing the lien to file your foreclosure. If you do not file for foreclosure within 15 months, the then lien will get discharged by the court. So, ideally you should file for foreclosure at least by the 12th or 13th month so that you can have all the documents ready.
Also, if no lawsuit is filed after 15 months of filing the lien, the claimant will have to release the release as requested by the owner. If the claim is not released, then the owner can sue the claimant for slander.
Another key point to remember is that when your attorney files to foreclose on the lien, they need file a lis pendens. This lis pendens should be filed in the real estate office which is the same office where you file your lien. When anybody does a title search in the real estate office, it will put them on notice that there is a lien on the property and that a lawsuit has been filed. If the owner tries to refinance or sell the property, it will give you the opportunity to get paid.
B) Parties to Suit (§ 18-44-123)
As a contractor, subcontractor, or supplier, if you are filing a lawsuit, you must name all the parties against whom the suit should be filed. For example, if you are a materialman, you must name the subcontractor to whom the material should be supplied, the general contractor, and the owner. If you fail to miss out on naming any of them, then the other parties can say that the person whom you have left out is the one who owes the money. This will make things difficult for you once your case reaches court.
Here are some of the key takeaways from this blog:
a. You can sell, transfer or assign your lien to a third-party. This is a quick and easy solution to get paid for your lien; however, remember that you may not receive the full amount of the lien.
b. You must send a notice to the owner within 20 days of filing the lien.
c. If the owner does not pay you even after sending the notice, you can claim reimbursement for your attorney's fees.
d. You must file your lawsuit within 15 months of filing your lien.
e. When your attorney files for foreclosure, ensure that all the relevant parties who are supposed to be sued are included.