Recording mechanic’s liens requires strict adherence to the statutory deadlines. Failure to comply with deadlines results in lost lien rights. For this reason, understanding when lien notices must be given and when liens must be recorded is vital to protecting lien rights.
1. Mistake One: Relying on Accounts Receivable Timetables to Calendar Lien Deadlines
A common mechanic’s lien mistake is calendaring reminders to record liens based on accounting timetables. Mechanic’s lien deadlines, however, are not tied to when a bill was sent for the work; rather, the deadlines are based on dates related to the completion of your work.
Take, for example, a subcontractor who uses its accounting department to calendar the reminder to record a lien on a project in Colorado. The accounting department scheduled that reminder for 90 days after payment is past due. In Colorado, however, mechanic’s liens must be recorded four months after the last day work is performed or materials furnished (and notice to the owner and general contractor must be sent 10 days before that). While the subcontractor’s 90-days-delinquent reminder is logical, considering that mechanic’s liens are meant to remedy nonpayment, it did not ensure that the subcontractor would meet its lien deadlines. Indeed, in this example, the 90-day reminder was actually longer than Colorado’s four-month deadline because subcontractor submitted its final invoice a few weeks after it completed its work, and payment was not due on the invoice for a month after its receipt. By relying on accounts receivable delinquency dates, the subcontractor lost its lien rights.
Fortunately, this common mistake can easily be avoided and lien rights can be protected. First, contractors must learn the lien recording deadlines for the state in which it is performing its work – there are no uniform lien recording deadlines, and each state’s lien statute is different. Second, contractors should calendar lien reminders based on the requirements of the lien statutes, like work completed on the project – not on accounting timetables.
2. Mistake Two: Misunderstanding When Your “Last Day of Work” Occurred
As noted above, lien deadlines are typically based on when subcontractors and contractors “completed” their work, a concept informally referred to as “last day of work.” For example, in Nebraska a lien must be recorded 120 days from the last day of work (or more technically, the “final furnishing of services or materials”). In Nebraska, and elsewhere, this “last day of work” may not actually be a contractor or subcontractor’s last day on the project. Indeed, performance of minor, punch list or warranty work will not extend lien deadlines in Nebraska, and Colorado follows a similar rule, where correcting “trivial imperfection(s) in or omission(s) from” project work is not included in extending the time for filing.
While there is no hard and fast rule of what constitutes a “last day of work,” subcontractors and contractors must have a general understanding of what work is probably not included in the definition and plan accordingly.
3. Mistake Three: Ignoring Pre-Lien Notice Deadlines
Another common calendaring mistake is the failure to timely serve pre-lien notices to owners or general contractors of a project. Contractors and subcontractors typically start a project with a positive perspective regarding payment. This typically means that they may choose not to file required pre-lien notices because they believe payment will not be a problem on this project. But even when payment is easy-breezy at the beginning of a project, getting paid may become a problem later in the project.
In some states, general contractors and subcontractors are required to serve notice before or shortly after their work begins. Iowa, for example, has a complicated set of rules governing pre-lien notice requirements. On private residential projects in Iowa, general contractors have two pre-lien notice requirements. First, general contractors must give notice to the owner that parties may have lien rights to the property, and this notice must be included in the construction contract (or if there is no written contract, in a separate writing). Second, general contractors must submit an electronic “commencement of work” notice on Iowa’s Mechanic’s Lien and Notice Registry when work begins. Subcontractors and suppliers on private residential projects also have pre-lien notice requirements.
Other states also require pre-lien notice to be filed after the work has started or even finished. In Colorado, for example, all lien claimants must provide the owner (and general contractor if there is one), 10 days advance notice prior to submitting a lien. Notice may be served after work has been completed, but it must be served no later than 11 days before the lien-recording deadline. Other states, like Nebraska, require no pre-lien notice, although there are optional notice provisions for residential projects.
While it is easy to ignore pre-lien filing notice deadlines (especially when the prospects for getting paid look good), this mistake can be fatal to lien rights. Contractors should learn early on (before a construction contract has been executed) if there are any pre-lien notice requirements in the state where the work will be performed. Then, contractors should calendar deadlines and prepare and serve notices accordingly.
4. Mistake Four: Not Utilizing Extensions (If the State Permits Them)
While many construction professionals may be familiar with pre-lien notice, mechanic’s lien recording, and the respective deadlines for both, many forget about a third option – filing a notice to extend time to record a mechanic’s lien. For example, Colorado allows a claimant to record a Notice of Extension of Time to File Lien Statement while a project is ongoing. This extension allows subcontractors and contractors to wait to record your lien until four months after completion of the project as a whole or six months after filing the extension, whichever is earlier. In Colorado, this often is a useful option if the lien recording deadline will expire before retainage or final payment even comes due.
When considering your lien deadlines, do not forget about this underutilized option.
Subcontractors and contractors can preserve their lien rights by properly calendaring lien deadlines, but the diversity in lien rules and deadlines across states makes things difficult. Thus, in order to ensure lien deadline calendars correctly reflect statutory deadlines, it is vital that subcontractors and contractors understand when liens must be recorded, if/when pre-lien notice is required, and whether their interests might be best served by an extension.
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