Liens against real property by contractors that contract directly with the property owner

Ordinarily, when a party files a lawsuit they cannot be assured they will be able to collect should they win because, by that time, the defendant may have no collectible money or assets.  However, in a case where a party that contracted directly with the real property owner seeks damages for labor or material, there is a powerful tool known as a Claim of Lien against Real Property (hereinafter “Claim of Lien”) designed to increase the chance the contractor will be able to collect.

A Claim of Lien must be filed within 120 days from the last date that labor or materials were provided.  To convert a “claim” of lien into an actual lien, a lawsuit must be filed in which the contractor brings a Claim to Enforce a Claim of Lien.  The lawsuit must be filed within 180 days of the last date that labor or materials were provided.  Returning to the job to finish some minor items of work may restart an otherwise expired period where the labor or materials were embraced within the original contract; the owner assents or requires such additional labor or materials; and the labor or materials are not of a trivial nature and were furnished in good faith, not for the purpose of evading the applicability of the period.

A contractor may be able to collect “reasonable” attorney fees but may also be required to pay them depending upon the outcome of the case.  To be eligible, fees, a party must be a “prevailing” party as defined by law.  A contractor is a prevailing party where it obtains a judgment at least 50% of the amount sought in the Claim of Lien.  An owner is a prevailing party if the contractor obtains a judgment less than the amount sought.  In addition to being a prevailing party, a party must also show the losing party made an “unreasonable refusal” to settle.  Even if a party meets these two requirements,whether fees will be awarded is within the judge’s discretion.  Finally, the amount must be “reasonable” as determined by the judge and thus there is no guarantee the amount will equal the amount incurred by the prevailing party.

A Claim of Lien is powerful for four reasons.  First, the effective date of the lien is the first date on which the contractor made improvements to the property. This is important because the lien will have priority over any security interests, such as a loan taken to pay off a construction loan that was taken prior to the contractor finishing work on the property. Thus, a contractor’s lien rights against real property are protected during the course of performing work on the property and until the expiration of 120-day period. The relation back of the lien prevents an owner from selling the property after work begins without first obtaining a lien subordination or lien release.  Second, a Claim of Lien prevents the owner from transferring the property as long as it is still pending; this can have the practical effect of persuading the owner to settle the case.  Third, a lawsuit to enforce a Claim of Lien is one of the limited circumstances in which the “prevailing party” may be able to collect a “reasonable” attorney fee from the other party.