In this blog, presented by SunRay Construction Solutions and Richard M Sissman, Counsel, Fracassi Sissman & Rand, LLP, you will learn in detail about the various steps that should be followed once you record your lien in Maryland, which will help you to get paid successfully.
Steps After a Notice of Lien
Before we look at the various steps involved, let's understand a few basics related to the construction business in Maryland. One of the key points to remember is that to proceed with your Mechanics lien in Maryland, you must first file your Notice of Lien if you do not have contractual privity directly with the owner.
In Maryland, owners are defined in two types – either the tenant, who is considered the owner under the Maryland Lien Law, or the landlord. Hence, if you do not have a privity of contract directly with the owner then you must find out who is considered as the property's owner. It is recommended that you always add the owner or the landlord and the tenant, if there is one, in your Notice of Intention to Lien letter. This will ensure that the owner/landlord is prompted to contact the tenant and take the relevant action.
Step 1: File a Petition to Enforce the Lien
So, the first step that you need to take is to file a petition to enforce your lien.
- The petition should be filed within 180 days of your last day of work. Remember that in Maryland, your last day of providing materials/labor is considered the last day of work, unlike some states where the last day of the entire project is considered the last day.
- If you have a privity with the owner, then you do not have to send a Notice to Lien Letter. You can directly go ahead and file your lawsuit and petition to establish in the Circuit Court of the Country where the real property is located.
- Once the lawsuit is filed, you must bring in all the necessary parties, such as other parties who may have also filed a Notice of Intention to Lien letter, the landlord, etc. Also, your petition to establish should include all the key counts like a petition to establish and enforce mechanics lien, breach of contract action, etc. First and second-tier suppliers and subcontractors can pursue a lien; however, third-tier professionals cannot pursue a mechanics lien action in a petition to establish.
Another important element your attorney should be aware of is using the right language in your letter. So, when you include the language petition to establish and enforce a mechanics lien, the process should be completed within one year from the filing date.
Step 2: Show Cause Hearing
Step number two is all an out-show-cause hearing. Once your petition to establish is filed, the Court will issue a summons to all the parties against whom you have filed the lawsuit. You will also have to draft and provide a show cause order along with your petition.
A show cause hearing must be held within 45 days of filing your petition. This show-cause hearing aims to determine whether you have met the 'probable cause' threshold. This will then help to decide whether you are entitled to an interlocutory lien or just the fine only. The deadline of 45 days can be extended by consent.
You also must bring your witnesses who know what labor and materials were provided to the project to the show cause hearing.
- At the show cause hearing, the Court can either grant you a final lien, an interlocutory lien with a final hearing to be held within 6 months of the show cause hearing, or deny and dismiss the petition.
- In most cases, it will be possible to reach the threshold, and in this instance, the Court will grant an interlocutory lien. The advantage of this lien is that it allows you to claim the title on that property. So, if the building is going to be sold, you will encumber the property so that the facility will not be sold.
- If the Court dismisses your petition, then as per Title 12, within 30 days of the denial of the interlocutory lien, you can make a motion for a final hearing to determine whether you are entitled to a final lien. If your final lien is granted, the next step is to force the sale of the property within one year. This is why we mentioned earlier that you need to put in the language and enforcement of the lien in your original filing. When you include this language, it can extend the timeframe of selling the property to one year.
- Next, you will need to post a bond set by the Court, depending on the property's value, your lien value, and some additional costs. You can either post a cash bond or go to a surety and ask them to post the bond for you. Meanwhile, if an interlocutory lien or any lien is placed on the property, then the owner/landlord can also bond off the lien. This means that there will be a specific amount placed in the Court's registry or in a separate escrow account.
- If you succeed in the final hearing, you will have the amount set aside to proceed further. If the lien is not bonded and you have received your final lien, then the Court will appoint a trustee who will commence the foreclosure process and get paid from the proceeds of the sale.
An important point to remember is that you do not prime anyone above you, especially a lender. So, if a lender on the property has encumbered the property with a deed of trust, then you take subject to anyone that has recorded and perfected their lien before you. So, if there is not enough equity in the property to go ahead with the foreclosure, you will need to pay off anyone over and above you.
Step 3: Arbitration Clause in Contract
If you have an arbitration clause in your contract, it can work against you. In Maryland, if any party requests arbitration, and the contract has an enforceable arbitration clause, then the Court must stay the mechanics lien proceeding.
To establish the lien, the Court will have to hold a hearing and determine the status of the accounts between the parties. The Court will then review all the evidence that violates the arbitration provisions.
In some cases, to protect your interests, you can request the Court to go forward and request for at least an interlocutory lien, even if there is an arbitration clause in the contract. This will enable you to place a cloud on the title, and when the interlocutory lien has been recorded, you can go to arbitration and work things out based on your contractual provisions. If you are successful in your arbitration, the Court will lift the stay and allow you to proceed with your lien.
So, to summarize, once you have recorded your Mechanics lien, you need to follow the three steps that we have discussed in this blog in order to ensure that you get paid for your work on construction projects in Maryland. Make sure that you are up-to-date on all the requirements and follow the deadlines accurately.