In this blog, presented by SunRay Construction Solutions and Jessica Murphy, Counsel, Mirick, O’Connell, DeMallie & Lougee, LLP, find out in detail about what should you do if you have filed a mechanics lien in Massachusetts to ensure that you get paid successfully.
Massachusetts Mechanics Liens
Read on to find out what a mechanics lien, who can pursue it, some of its benefits, deadlines to follow, notices to send, and more.
What is a Mechanics Lien and Who Can Pursue One?
a. A mechanics lien is a lien against a private property where labor was performed, or materials used for an unpaid construction debt. You can think of it as a mortgage and attach it to a property. In Massachusetts, you can obtain a mechanics lien by filing it with the Registry of Deeds.
b. A mechanics lien can be pursued by general contractors, subcontractors of any tier, and suppliers.
c. It is applicable to various trades like construction management services, rental equipment, appliances or tools, architect, land surveyor, site surveyor, etc.
d. Liens for labor are also permitted although they are not quite common. This means that if you are providing man/woman power on the job, then labor liens are permitted. For labor liens, you get the value of labor over a 30-day period that has been provided in the 90 days before you file the lien.
Benefits of a Mechanics Lien
Because mechanics lien is provided by the statute, you must remember that every state is different. Here are some of the benefits of filing a mechanics lien in Massachusetts:
a. It gives the contractor, subcontractor, or supplier priority over later filed liens and attachments. It gives you the right directly against the owner and the property.
b. If your payment issue is not resolved, and while pursuing your mechanics lien, the judgment is ruled in your favor, then the Court will give an order to sell the property to pay the lienholder.
c. So, a mechanics lien provides significant leverage for payment from the owner.
How to Pursue GC and Subcontractor Liens?
So, how do you actually pursue the mechanics lien as a general contractor or subcontractor? The very first thing that you should do is ensure that you have the Massachusetts requirements for lien, which includes:
a. A broadly defined written agreement of an acknowledgment by the party with which you are working. A key point to remember is that mechanics lien is applicable only for private projects and not for public projects. To pursue your mechanics lien, you must have services either labor or materials provided to benefit a private property. You also need to know where the property is located and obtain a deed reference.
b. Next, you need to prepare and send the Notice of Contract which should be recorded within 90 days of any contractor’s performance on the job.
c. The next document required in Massachusetts is the Statement of Account which should be recorded within 120 days of any contractor’s performance on the job.
d. Finally, you will need to file a Verified Complaint with the Court to perfect your lien. This document should be filed in the Court within 90 days of recording the Statement of Account and you will need to record a copy of the Complaint in the Registry of Deeds.
The timing mentioned for each of the documents is absolutely crucial in ensuring the success of your mechanics lien. As mentioned, the deadlines are related to the last date of any contractor under the general contractor has performed the job.
In a typical construction project, the chain starts from the owner to the general contractor, then to the subcontractor and then to the suppliers. So, anybody who is in this chain can use the last date of work of anyone who has done the work under the general contractor. Also, you will need to involve your counsel when it is time to file the Verified Complaint document because it needs to be done in the local court.
Read more: A Contractor’s, Subcontractor’s & Supplier’s Step-By-Step Guide to Getting Paid
How to Pursue Lower Tier Contractor Liens?
There is not much difference when it comes to a lower tier contractor, such as a sub subcontractor or below pursuing a mechanics lien.
a. One of the key differences is that as a lower tier contractor, you will need to send a Notice of Identification (NOI). It is a statutory form which informs the general contractor that you are involved in this project. It is beneficial since you do not have a direct contract with them, and they may not be aware that you exist.
b. This statutory form is sent by certified mail to the general contractor, and it should be sent within 30 days of starting your work.
c. Although you can still file a mechanics lien even if you do not send the NOI, it will limit the value of your lien to the amount due to the party you contracted with at the time the Notice of Contract is recorded.
So, if you are a lower tier contractor, then it is highly recommended that you send the NOI to maximize the value of your lien.
Litigation Required to Perfect a Mechanics Lien
Once your mechanics lien is filed, the next step is litigation.
a. So, a complaint is filed in the Superior (for claims that are above $50,000) or District Court and you can include all other claims against any other party related to the same matter. Typically, the complaint is against the owner or the general contractor with whom you have the contract. If you are a supplier or a lower tier sub, then you will make a claim against the party with whom you have your direct contract for breach of contract for failing to pay. If you have taken a guarantee of the debt, then you should also include your claim against the guarantor.
b. Timing is one of the most crucial elements. If you are pursuing litigation and it does not get resolved, then such cases in the Supreme Court are known as Fast Track cases. This means that it will take approximately 16 months from the filing of your suit until your final pretrial conference where the trial date is assigned. There are no such prescheduled deadlines or timings for District Court cases.
c. You must be able to prove that money is indeed owed to you and no defenses apply. Again, pay close attention to the timing because if the owner has already paid the general contractor at the time when you filed your mechanics lien, then it will limit your lien value. Which is why you must ensure that you are filing your mechanics lien as early as possible.
d. You can file a Notice of Contract anytime in Massachusetts once you have an executed contract, up to 90 days after the last work on the project.
Best Practices for Success in Litigation
Here are some best practices for success in not only a mechanics lien litigation, but any other litigation that you may be a part of.
a. Documentation is absolutely crucial in ensuring the success of your mechanics lien litigation. So, make sure that you are documenting all your agreements with your customer, such as how you are going to provide the services or materials, credit terms, interest rates, days to pay, an agreement that they will pay your attorney fees, etc. Do not miss to document your change orders or any addition/modification to the original contract.
b. You need to maintain legible, complete copies of all your paperwork. If you have a purchase order, retain both the sides, or if you are a supplier, then you must keep copies of your invoice or delivery slips. This is because the person who is enforcing the mechanics lien is obligated to prove that the materials did go to the job site and were incorporated in the project.
c. Next, you must analyze any potential counterclaims for performance issues, delays, etc. Try to assess these counterclaims early and determine if there is any merit to them.
d. Another best practice is to promptly pursue collection which means that send out your demand letters, send out other required documents, do not hold your invoices, etc. By doing so, you can reduce the likelihood of waiver, mitigation, or statute of limitations defenses.
e. In construction projects, people typically move around a lot. So, if you are pursuing litigation, then it is a good idea to keep the facts fresh in the minds of potential witnesses who can attest that things were delivered, etc.
f. Finally, always keep your eyes and ears open for information about your customer’s work. Remember that as per the mechanics lien requirements, you can have a mechanics lien only up to the value that the person above you has not been paid for.
For example, you are a subcontractor, and you have a contract with the general contractor. Now, when you are filing your mechanics lien, the general contractor is owed $50,000 and your mechanics lien is $60,000. What will happen here is that your mechanics lien is also going to be limited to $50,000 because that is the only amount due between the owner and the general contractor at the time of you filing your mechanics lien.
This is why you should record your mechanics lien as soon as possible because there is a greater likelihood of the owner not paying in full at the beginning of the project.
Mechanics lien is considered a powerful tool because the owner typically requires general contractors to clear any lien as part of the owner and general contractor contract. This is because the owner obviously does not want their property liened or sold if they lose the mechanics lien case. This is why in most cases; somebody will reach out before the litigation goes too far to reach a resolution.
Finally, a key point to take note of is that there is a potential that a lien bond will be recorded to clear the mechanics lien on the property. This is actually a good option because if you are looking to get paid and there is a bond, then you can rest assured that a surety company will pay you.