Everything You Wanted to Know About Lien Law: Part 1
Date Posted: March 17, 2015
Posted In: Ideas, White Papers,
“Missouri Mechanic’s Liens: Part 1: Mechanic’s Liens Summarized and Explained”
by Joseph C. Blanner, Esq.
McCarthy, Leonard & Kaemmerer, LC
I. What is a Mechanic’s Lien?
One question that I am frequently asked is, “what is a Mechanic’s Lien”? Simply put, a Mechanic’s Lien is a tool that can assist a contractor, subcontractor, supplier or design professional to collect for furnishing work, labor or materials on a construction project.
II. How does a Mechanic’s Lien help a contractor collect?
The Mechanic’s Lien allows the contractor to obtain a secured interest in the real estate that was improved by the work, labor and materials. People are generally familiar with security interests against their real estate. If you borrowed money to purchase your home, your lender would have required you to sign a promissory note. This document says that you are going to repay the lender for the money lent. Your lender would also have required you to sign a mortgage (in Illinois) or a deed of trust (in Missouri). This document authorizes the lender to foreclose on the real estate if the obligations of the promissory note are not satisfied (i.e. the lender is not timely paid). In other words, the property provides security to the lender for the repayment of the loan.
Just as a deed of trust or mortgage provides security for the repayment of a loan, the Mechanic’s Lien provides security to the contractor for the repayment for the furnishing of work, labor or materials. Thus, if a contractor or supplier is unpaid for work, labor or materials, a Mechanic’s Lien can be filed and the property could ultimately be sold to pay for the construction. In my experience, the property is rarely sold because the enforceable Mechanic’s Lien generally forces the owner or other parties to pay for the work prior to this occurring.
III. What is the advantage to filing a Mechanic’s Lien?
Having filed approximately 800 Mechanic’s Liens, it is my opinion that the Mechanic’s Lien: (1) greatly increases the likelihood of collecting for work; (2) generally increases the amount collected; and (3) generally causes the amount to be collected quicker. It increases the likelihood of collecting because of the security created. There can be a variety of reasons for nonpayment. If the reason is that the owner is defunct, insolvent or bankrupt, the Mechanic’s Lien can allow a contractor to still collect even though the owner cannot pay, because of the interest in the real estate. A lawsuit against a defunct or insolvent owner generally does not result in collection. You have heard the adage that you cannot get blood out of a turnip. In collection, you cannot get money from of an assetless, defunct company. However, if a contractor has a Mechanic’s Lien against real estate, then there is something of value that can be sold to repay for what is owed. In certain circumstance, which will be discussed in a future article, the Mechanic’s Lien can even take priority when the property itself is foreclosed upon by a separate lender.
The Mechanic’s Lien also generally increases the speed at which collection occurs. Let me give an example of how this often works. A developer is converting a downtown office building into loft condominium units. The owner and contractor get into a dispute over the amount owed on change order work and the owner refuses to pay. The contractor files a Mechanic’s Lien against the property. This Mechanic’s Lien becomes an encumbrance or cloud on the title of all of the individual condominium units and the building as a whole. The owner intended to convert the project from construction financing to permanent financing at the conclusion of the work. However, because of the cloud on the title, the owner likely has to resolve the Mechanic’s Lien to get the property refinanced. Also, the owner is seeking to sell individual condominium units. However, each of the units has a cloud on its title. So, to sell individual units the owner likely has to secure the release of the Mechanic’s Lien.
Often, the filing of the Mechanic’s Lien is able to force the owner to deal with the payment dispute and to deal with it much quicker than it would otherwise have been dealt with.
IV. What is Lienable?
Generally, anything that went into improving the property is lienable. Certainly, labor and materials that went into the property itself are lienable. For instance, drywall, paint, nails, light fixtures, flooring materials, structural steel, windows, bricks and mortar can all be part of a Lien. Certain consumables can be lienable if they are used up in the construction. For instance, if paintbrush is completely consumed by the project (i.e. used up), it could be included in a Lien. However, if a new backhoe was purchased for the project, but will be used on other projects, the purchase itself is not lienable. A reasonable charge for its use would likely be lienable. Rental charges can be lienable if certain conditions are met. Things that are not affixed to the property (such as furniture, pictures, etc.) are not lienable.
V. Timing of Filing Lien:
A Mechanic’s Lien must be filed with the Circuit Clerk in the County where the property is located. It must be filed within six months of the last date that a contractor last furnished work, labor or materials (excluding punch list or warranty work). A lawsuit to enforce the Mechanic’s Lien must also be filed within six months of the filing of the Mechanic’s Lien or the Lien will no longer be a valid and enforceable lien.
There are also certain conditions precedent to filing a Mechanic’s Lien. The statutes require that notice be given in advance of filing the Mechanic’s Lien. However, the type and timing of the notice depend on: (1) whether the contractor is an original contractor or subcontractor; and (2) whether the project is commercial or “owner-occupied residential property of four units or less”. There are various other statutory requirements that I will deal with in subsequent articles.
I strongly recommend that you consult with your attorney prior to filing the Mechanic’s Lien to make sure that it is correctly filed and that the times and conditions for filing have been met.
Joe Blanner is a partner in the firm of McCarthy, Leonard & Kaemmerer, PC. He is also the president of Construction Forum STL. Joe can be reached at jblanner@mlklaw.com, telephone 314.392.5200