Construction Liens 101
Although you may have heard of a construction lien, not everyone knows about the ins and outs, what they are for and how they work.
What is a Construction Lien?
A construction lien (also called a mechanic’s lien) is a legal tool used by individuals and companies when a property owner fails to pay them for work completed or materials supplied. The lien is a security interest in the property for the amount owed, similar to a mortgage. In practice, the lien is recorded and provides notice that there is an unpaid debt associated with the property. This essentially places a “hold” on the property and prevents the owner from moving forward with selling or refinancing the property until the lien is waived or released. It also provides the ability to foreclose on the lien, again, similar to an unpaid mortgage.
Who Can File a Claim of Lien?
Contractors, subcontractors, professionals, and laborers who have worked on a property and not been paid may file a construction lien. According to Florida law, suppliers may also file a construction lien for the value of their contribution to the property. Both persons in privity of contract and those not in privity of contract may file.
Those not in privity with the owner must provide a “notice to owner.” The document must be served on the owner within 45 days from when the lienor first furnished labor or materials for the project, or before the contractor provides the owner with a final payment affidavit and the owner disburses final payment (but still within the 45 day window). There are specific requirements about how and when these notices must be served, and there must be strict compliance to preserve lien rights.
The Claim of Lien
The lienor must record the claim of lien within 90 days of the final furnishing of materials, labor, or work. Again, this is strictly applied, and the lienor must work off a very specific timetable and cannot miss any deadlines to file paperwork or notices, or they risk the lien being unenforceable. Florida law spells out the “magic language” that the claim of lien must contain, and it must conform to what the law requires. A claim of lien may be amended once recorded, as long as the timing has not expired.
Once a lienor has perfected a claim of lien, they may move forward with an action to foreclose on the property. Note, a foreclosure action based on a mechanic’s lien must be filed within one year from recording the claim of lien. Additionally, a lis pendens must be recorded when filing the foreclosure lawsuit.
There are several other details within Florida lien law that affect a person’s ability to foreclose on their claim of lien. For example, a contractor in direct privity with the owner must provide a contractor’s final affidavit at least 5 days before filing the foreclosure lawsuit. In short, this affidavit tells the owner that all lienors the contractor is in contract with (for example, subcontractors) have been paid, or the contractor must provide the names of those that have not been paid and provide the amounts owed.
What is a Payment Bond?
A payment bond may be issued to prevent a mechanic’s lien on a property. A property owner may require contractors to provide a payment bond in the amount of the contract price, providing security that all lienors may look towards for payment instead of securing an interest in the property through a lien. Payment bonds come with specific legal requirements as well. To learn more contact Christopher Utrera at firstname.lastname@example.org.