For a contractor, subcontractor or supplier who has not been properly paid, few remedies match the power of the mechanics’ lien. A properly-recorded mechanics’ lien allows a party to file an action in state court against the subject property, and to foreclose and force the sale of that property to satisfy the lien amount. In fact, the mechanics’ lienor typically has priority over all other creditors except those with superordinate mortgages or liens. Accordingly, a property owner will typically secure a bond for the amount of a properly recorded mechanics’ lien, with the lien transferring from the property to the bond. This gives the lienor a source of cash for the satisfaction of the unpaid amount.
Because the mechanics’ lien is an action in rem against the subject property, there is no requirement for privity of contract. Non-lawyer translation: a mechanics’ lien can be recorded by a subcontractor or supplier, even if that party did not contract directly with the property owner. So long as certain requirements are met, which vary by state, a subcontractor or middleman who only contracts with a general contractor can nonetheless attach the property to which the services or materials were provided.
Due to the power that the mechanics’ lien affords, courts require strict compliance with all procedural requirements for a lien to be effective. These requirements vary significantly by state, and by the nature of the party filing the lien, so contractors, subcontractors and suppliers who operate in different states must take care to ensure that they are not erroneously applying one state’s law in a different jurisdiction.
For example, Rhode Island, New Hampshire and Massachusetts require lien claimants to record in the applicable office of land records a notice of intention to file a mechanics’ lien prior to the commencement of any action to enforce such a lien. Moreover, Rhode Island requires a general contractor to give the property owner a preliminary notice of possible mechanics’ lien within ten days after commencement of work, but imposes no such preliminary notice requirement on subcontractors or suppliers. New Hampshire imposes no preliminary notice requirement on general contractors, but places a thirty-day requirement on subcontractors and suppliers. Massachusetts also imposes no preliminary notice requirement on general contractors, but places a ten-day preliminary notice requirement on subcontractors and suppliers. Rhode Island law permits liens for work done up to two hundred days prior to recording the lien, whereas New Hampshire has a one hundred twenty-day look back period. Massachusetts law is far more complex, with a three-prong “lesser of the following” test for the recording of the contract or subcontract, and a similar three-prong test for the last day to record the actual lien.
Lastly, mechanics’ lien laws can also intersect with other state laws such as those governing condominiums. Further, many states hold that mechanics’ liens are not effective against public property. Thus, it is not enough to merely understand the mechanics’ lien law of the state in which the subject property lies, it is equally important to understand that law in the context of the nature of the property itself.
Because of the power to lien and foreclose, actions to recover under a mechanics’ lien are held to the highest level of judicial scrutiny. However, for those parties who manage strict compliance, the mechanics’ lien is an extremely powerful remedy to ensure that proper payment is received.
Given all of the “ins” and “outs” of mechanics’ lien law, it is of the utmost importance for contractors, subcontractors and material suppliers to consult with an attorney schooled in this arena of the law before breaking ground or supplying materials on a project. For further information on this legal issue or other business matters important to you, contact Attorney Joel K. Goloskie at [email protected] or call 401-824-5100. We welcome your comments, questions and suggestions.