Liens II

IV. SUBCONTRACTOR'S PRE-LIEN NOTICE.

Subcontractor's Pre-Lien Notice (Exhibit B) must be personally delivered or sent by certified mail to all "owners" within 45 days after the earlier of the subcontractors first work on the property or delivery of materials to the property, or the first day the owner/builder picks up materials for the property, or the subcontractor's first other contribution to the improvement of the property.

1. Owners. Both the husband and wife should be served with a separate Pre-Lien Notice. If the property has been sold under a Purchase Agreement prior to the time of your first delivery or you start work, you must send separate Pre-Lien Notices to both the sellers and the purchasers.
• If the Purchase Agreement is signed after your first delivery or date your work started, you need not give a Pre-Lien Notice to the new buyers.
• IOwners including Sellers and Buyers under a Contract for Deed.
2. Examples:
• Joe and Mary, husband and wife, own a vacant lot and have hired Ace Builders to build a home on the lot. Ace Builders subcontracts with Smith Lumber to supply the materials for the job. Smith Lumber must give both Joe and Mary each a separate Subcontractor's Pre-Lien Notice within 45 days of the earlier of Smith Lumber's first delivery of materials to the property, or the first day the contractor picks up materials, or the first day Smith Lumber makes any other contribution to the improvement of the property.
• Same as Example A, except Ace Builders owns the vacant lot and has entered into a Purchase Agreement with Joe and Mary to sell them the lot and to build their new home. Smith Lumber learns of the Purchase Agreement before it begins delivery of materials. Smith Lumber must give Joe and Mary each a separate Subcontractor's Pre-Lien Notice within 45 days of Smith's first contribution to the home.
• The same as Example A, except Bill and Sue are selling the vacant lot to Joe and Mary under a Purchase Agreement, but they have not closed on the sale of the lot. Ace Builders starts building the new home on the lot for Joe and Mary, and Smith Lumber delivers materials before the closing of the sale of the lot. Smith Lumber knows of the Purchase Agreement between these parties before its first delivery. Smith Lumber must serve Joe, Mary, Bill and Sue with a Subcontractor's Pre-Lien Notice within 45 days of Smith's first delivery to the home. Ace Builders should also include in its contract and serve the Contractor's Pre-Lien Notice on Joe, Mary, Bill and Sue.
• Joe and Mary own a home and have contracted with Ace Builders to remodel the basement. Ace Builders contracts with Smith Lumber to supply materials for the job. Smith Lumber learns that Joe and Mary live in the home across the street and Mike and Linda live in the home being remodeled. Smith Lumber must serve Joe and Mary with a Subcontractor's Pre-Lien Notice, and should serve Mike and Linda, the occupants, with a Pre-Lien Notice. Ace Builders should also include the Contractor's Pre-Lien Notice in their contract with Joe and Mary.
• Smith Lumber, a subcontractor, mails the Pre-Lien Notice by regular mail within the 45 day period. Smith is not paid, files a Mechanic's Lien and starts a foreclosure lawsuit. The owner counters that the Pre-Lien Notice was not properly served. Tough luck for Smith. It is an absolute requirement that the Pre-Lien Notice be sent by certified mail. Regular mail, even if Smith Lumber approves that the homeowner received the Notice within the 45 days, it does not count.

V. GENERAL COMMENTS, PRE-LIEN NOTICE

1. How to determine the "owners" of the property.
   Contractors:
• ALWAYS ask the owner whether any other person or entity has any ownership interest in the property.
• ALWAYS verify the information given you by the contractor with your own investigation.
• ALWAYS take the legal description of the property to the County Recorder and check the property tract index to see that the claimed owner is named on the last deed filed. Generally, the County or City Zoning Office can give you the legal description of the property if you have the street address, and vice-versa.
• Subcontractors: ALWAYS watch the Builder's order form to see if anyone is named as a buyer,. i.e. "the Meyers job" or "Ken Olson - Buyer". If someone has come into your business to select items, that person is probably the buyer and should get a Subcontractor's Pre-Lien Notice.
2. Additional observations.
• ALWAYS serve all occupants of the improved property with a Pre-Lien Notice.
• If you know the name of one party living on the property, but are unsure of their marital status, send a separate Pre-Lien Notice to a Mr. or Mrs. __________________. For example, you know John Smith owns the property, but do not know if he is married. Send one Pre-Lien Notice, certified mail, to John Smith, and a second Pre-Lien Notice, certified mail, to Mrs. John Smith.
• Request that your delivery truck drivers or workmen let you know of any discrepancies between the addresses on the delivery tickets and the address where the materials are delivered. Tell them to let you know of anything unusual about the delivery or job.
• You must be particularly concerned if the builder has two projects going on the same area that materials shipped to one location are not used by the contractor at the other location. Monitor the shipments to insure that the amount and type of material going to a particular project is consistent with the type and size of home being constructed.
• Contractors are obligated under Minnesota Law to provide subcontractors with the name and address of the property owner. The failure of the contractor to provide the owner's name makes the contractor liable to the subcontractor for damages. In most cases, the law is meaningless because the subcontractor would not be enforcing their lien rights if the contractor could pay them.
• Only give a Pre-Lien Notice on the projects where you want to be paid.
• PRE-LIEN NOTICE IS NOT A MERE TECHNICALITY. MECHANIC'S LIEN CLAIMS ARE REGULARLY DISMISSED BY COURTS BECAUSE OF NO PRE-LIEN NOTICE OR THE PRE-LIEN NOTICE GIVEN WAS NOT IN PROPER FORM OR NOT PROPERLY SERVED. IT IS TO LATE TO THINK ABOUT A PRE-LIEN NOTICE WHEN YOU REALIZE THAT YOU ARE NOT GOING TO GET PAID.
3. Time Period. If you are a General Contractor the Pre-Lien Notice must be included in all written contracts or, if you have an oral contract, it must be hand delivered or mailed by certified mail to all owners within ten (10) days of your agreement. If you are a subcontractor, the Pre-Lien Notice must be mailed by certified mail or hand delivered within forty-five (45) days of your first improvement.
   • Request from the post office and keep in your file the certified mail white receipt stamped by the Post Office on the date you deliver the letter to the Post Office, and keep the green return card in your file when it is returned to you by the Post Office. The date of receipt by the owner is the key to the 10 or 45 day period.
   • Keep a photocopy of each Pre-Lien Notice you send. Staple the white receipt and green certified mail card to your Pre-Lien Notice copy.
   • Time limits are strictly enforced by the courts.
   • Do not wait until the 44th day to send. It appears that it must be delivered (or attempt to be delivered) within 45 days.
4. Exceptions to Pre-Lien Notice. Generally, Pre-Lien Notice is not necessary:
• If the contractor is managed or controlled by the same person(s) who own the property, or
• If you have a direct contract with all of the property owners and you do not use subcontractors or material suppliers, or
• If the property is not agricultural land and is at least partially nonresidential and the project involves, adds or contains over 5,000 square feet of floor space, or
• If the project consists of providing four or more family residential units.
• If the land exceeds 5,000 square feet and does not include new construction of a building or an improvement to an existing building;
• If an owner acts as their own general contractor (limited exception);
• Pre-lien notice must always be given if the improvement is to agricultural land.
• However, to be safe, always give Pre-Lien Notice. At a minimum, it identifies you to the owner and lets the owner know that you must be paid.
5. Special Subcontractor Rights.
• The owner may pay a subcontractor directly and deduct the payment from the amount due the general contractor.
• Similarly, the General Contractor can pay a lower tier subcontractor and deduct the payment from the first subcontractor. Example: A general contractor hires a cement contractor to do the garage floor, and the cement contractor buys the ready mix. The General Contractor can pay the ready mix company directly, and deduct the payment from the amount due the cement contractor.
• NOTE: The amount an owner must pay to satisfy mechanic's liens is reduced by the amount the owner paid to the contractor prior to the owner's receipt of a Pre-Lien Notice. ADVICE: Do not wait to serve the Pre-Lien Notice.

VI. MECHANICS' LIEN STATEMENT.

The Mechanics' Lien Statement must be filed with the County Recorder or Registrar of Titles and served upon an owner or the Contractor within 120 days of your last improvement. This time limit is the same for both Contractors and Subcontractors. (Exhibit C)

1. Use the last $100.00 (plus) delivery to avoid "screen door" problems.
2. Contact your attorney or a lien service no later than 90 days after your last $100.00 item. This can save you money, and does not necessarily mean that the lien will or must be immediately filed.
3. Once the matter is referred to an attorney, instruct all personnel in your office not to discuss the case with the owner/builder/debtor.
4. The Lien Statement must both be recorded at the county recorder's office and service attempted within the 120 days.
• Central Builders contract with Michael to improve a restaurant contains the proper Pre-Lien Notice. The work is done, but Central is not paid. Central's owner finds an old Mechanic's Lien statement form, fills it out and runs to the courthouse where he files it, but does nothing more. The lien is not valid because it is not served on the owner of the property.
• Same example, but this time Central drops a copy of the Notice in the mail to the homeowner on the 118th day, and has his secretary sign an affidavit, which is notarized, stating that the Lien Statement was mailed on the 118th day. The lien is still not valid because it must be either personally served or served by certified mail.
• Same example, except this time on the 119th day Central properly files the Lien Statement with the county recorder and mails a copy to the property owner by certified mail. The first attempt to deliver the certified letter is two days later, on the 121st day. The lien is not valid because service must be attempted within the 120 day period.