What Every Developer And Owner Should Know About Mechanics' Liens: Part III
This alert is the third of a three part series intended to help developers and owners evaluate and address liens against their property. To review the first two installments of this series, click here.
Defending a mechanics' lien claim can be daunting. A successful mechanics' lien claim includes mandatory award of attorneys' fees and can create substantial title issues for an owner or developer. Accordingly, it is important to evaluate whether there is a defense to the claim early on in assessing whether to settle with or fight the lien claimant. Here are some defenses that can defeat a lien claim:
- Improper legal description: A lien could be defective for failure to properly describe the real estate on which improvements have been made. However, minor defects in the description are not usually sufficient to defeat a mechanic's lien claim.
- Sworn Statement: A notice of lien must be a sworn statement. However, minor deficiencies in a sworn statement are not sufficient to invalidate a lien.
- Wrong Claimant: A notice of lien must be filed by the party with the actual claim. Thus, for example, when a lien was filed by the corporation but the contract for construction had been entered into by the corporation's principal in his individual capacity, the lien is invalid.
- Wrong Owner: The proper owner of the property must be named in the lien or it is invalid.
- Materialman to a Materialman: A materialman who supplies materials to a materialman cannot have a valid lien.
- Untimely Lien Notice: Depending on the type of construction, a lien notice must be filed within either 60 (residential) or 90 (commercial) days of the last work done or material provided. A lien claimant cannot extend this time by performing work incidental to the contract or by entering into a new contract for separate work.
- Time-barred Claim: To enforce a mechanic's lien, the claimant must file a complaint in the county where the real estate or property that is subject to the lien is situated within one year after the date the statement and notice of intention to hold a lien was recorded. Indiana courts rigorously enforce this deadline. Moreover, an owner or other interested party, like a developer or mortgagee, can act to accelerate this process by serving the lien claimant with formal notice to proceed within 30 days of the notice. If the claimant dawdles past that deadline, the lien is void and the claimant cannot prosecute a mechanics' lien and recover statutory damages like attorneys' fees.
- Pre-Lien Notice: One of the most common and successful defenses to the claims of subcontractors or other parties not in direct privity with the owner is the failure to give the appropriate pre-lien notice if the work concerns residential construction or improvements.
- Bona Fide Purchaser: A lien for materials or labor provided for the original construction of a residential dwelling is not valid against a purchaser who records the deed by which the purchaser takes title prior to the mechanic's lien being recorded.
- Consent of Owner: In order for a lien claimant to have a valid lien, the owner must have either actually or impliedly consented to the work. Thus, when a tenant makes improvements, those providing labor or material at the direction of the tenant do not have a valid lien unless they can show the active consent of the owner and it can be shown that there was a "bargained-for" benefit to the owner. The owner's knowledge and even approval of construction or other improvements may not be sufficient to establish active consent especially when the improvements made do not directly benefit the owner.
- Full Payment to Contractor: While the owner will not be able to defeat the lien claim of a subcontractor or materialman based on this defense, Indiana does give the owner some protection by disallowing attorneys' fees in the event the owner has fully paid the "contract consideration" to the general contractor.
- Intended Use of Materials: If a materialman furnishes materials that are used in the construction of a building but without knowledge that this was the intended use, it will not have a valid mechanic's lien.
- Actual Use: Materials that are not actually used in the construction or improvement will not support a mechanic's lien. But if an owner removes material without the supplier's knowledge, the material supplier may still have a valid lien.