Mechanic's Lien

I. DEFINITION - ADVANTAGES.

1. A mechanics' lien secures payment of a claim arising from improvement to real estate. The improved property secures payment and can be foreclosed and sold to pay the debt.
2. Advantages of a mechanic's lien.
• A. It has priority over other liens.
• It provides security for payment in case of refusal or inability to pay, Bankruptcy, abandonment of job, etc.
• It informs mortgage company or title company of claim.
• It hinders the sale of property until you are paid.
• It Gives the Contractor or subcontractor leverage to pressure the owner into paying.
• It allows recovery of interest and attorneys fees.
3. Note: Mechanic's Liens are not valid against public property (i.e., schools, city hall, state buildings, etc.)
• "Bond Claims" under Minn. Stat. §574.26 protect payment to subcontractors and suppliers.
• But, property held by a municipality for purposes of economic development as a non-public commercial business site is not exempt from Mechanic's Liens.

II. THREE GENERAL REQUIREMENTS.

1. Pre-Lien Notice: Give Pre-Lien Notice to all property owners that a Mechanics' Lien may be filed against the property.
• If you are a contractor, you must include a Pre-Lien Notice with your written contract or, if you have an oral agreement, you must serve the owner with Pre-Lien Notice within 10 days after the work is agreed upon. (Exhibit A)
• If you are a subcontractor, you must serve all owners with a Pre-Lien Notice within 45 days of your first work or delivery. (Exhibit B)
2. Mechanic's Lien Statement: File with the County Recorder and serve all property owners with a Mechanics' Lien Statement within 120 days of your last item of work or delivery of materials. (Exhibit C)
3. Foreclosure: Start a lawsuit to foreclose the Mechanics' Lien within one (1) year of your last item of work or delivery as shown on the Mechanics' Lien Statement.
4. In enforcing a Mechanics' Lien, Courts pay particular attention to the Pre-Lien Notice requirement, but are a little more flexible on the formalities of the Mechanics' Lien Statement and the lawsuit. All time deadlines are strictly enforced.
• A subcontractor will not lose its lien if it makes a "good faith effort" to comply with the pre-lien notice requirement. This does not apply to a general contractor.
• Only the attached Pre-Lien Notices may be used (Exhibits A and B).
• All Mechanic's Liens on an owner's property will be reduced by payments made by the owner to the contractor prior to the owner's receipt of the subcontractor's pre-lien notice.

III. CONTRACTOR'S PRE-LIEN NOTICE.

If you are the general contractor, (i.e. have a direct contract with the property owner and intend to use subcontractors or material suppliers), you must give the Contractor's Pre-Lien Notice to each property owner (Exhibit A). The Pre-Lien Notice must be included in the written contract with the owner. If there is no written contract, it must be personally delivered or sent by certified mail upon the owner within ten (10) days of the date of your agreement. (not date of your first work or delivery.)

1. A contractor's Pre-Lien Notice need not be given if the contractor directly contracts with the owner and is not using subcontractors or material suppliers.
2. Examples:
• Sam, a builder, contracts with Mary and Joe, who own a vacant lot, to build a home for them on the lot. Sam will subcontract the plumbing, heating and electric and purchase the materials from Smith Lumber. Sam must include the Contractor's Pre-Lien Notice in his written contract with Mary and Joe. If Sam does not have a written contract, he must personally deliver or send by certified mail a Pre-Lien Notice to both Mary and Joe within ten (10) days of the date they reach an agreement to build the house.
• Sam contracts with Mary and Joe to remodel the basement in their home. Mary and Joe will purchase all of the materials and Joe's brother will do the electrical and plumbing work. Sam agrees only to do the labor himself and does not intend to contract with any material suppliers or subcontractors. Because Sam is not using subcontractors or suppliers, Sam need not give Pre-Lien Notice to Mary and Joe.
• Smith Lumber contracts with Howard to build a pole barn on Howard's land. Smith Lumber will supply all of the labor and materials, but Smith Lumber will subcontract the manufacturing of the trusses. Because of the subcontract for the trusses, Smith Lumber must provide the Contractor's Pre-Lien Notice in its written contract with Howard, or, if there is no written contract, Smith Lumber must serve Howard with the Contractor's Pre-Lien Notice within ten (10) days of the date of its oral agreement with Howard.
• Central Builders has given Betsy and Brian several proposals to build a home. The proposals all include the Contractor's Pre-Lien Notice. When the parties finally agree, a contract is signed, which does not include the Pre-Lien Notice. Central Builders has no lien rights because the final, signed contract did not include a Pre-Lien Notice.
• Sam, the owner of Minnesota Builders, is something of a computer whiz and is proud of his new word processing computer system. He goes to a BAM seminar and learns that he must include a Pre-Lien Notice in his contracts. He has an expensive printer to go with his computer system, and chooses an Italicized type. He prints up the Pre-Lien Notice using the Italicized type and attaches a copy to his contract. The Pre-Lien Notice may not be valid. Minnesota law requires that the lettering of a Pre-Lien Notice be capitalized if typed, or at least 10-point bold type, if printed. The moral of the story, do not get fancy and only use the notices provided in attached Exhibits A and B.
• At the next BAM seminar, Sam listens a little more carefully and uses the notice shown in Exhibit A. Sam is a general contractor who sometimes uses written contracts, and sometimes on smaller jobs simply does the work. In all cases, Sam sends Pre-Lien Notice by regular mail. Sam's attempt to give Pre-Lien Notice is fatal and his Mechanic's Lien rights are not valid, the Pre-Lien must be part of the written contract. When Sam is using written contracts, when he does not have a written contract, the Pre-Lien Notice must be sent by certified mail, and not regular mail.
• Central Builders orally agrees to model a building in which Michael intends to use for a restaurant. Before starting the work, Central Builders learns that Michael is purchasing the property on a Contract for Deed, but Central does not know the identity of the Contract for Deed seller. Central served the Pre-Lien Notice on Michael by certified mail, but not the Contract for Deed seller. Central later is not paid, files a Mechanic's Lien and starts a lawsuit. Central's Mechanic's Lien is not valid against the Contract for Deed seller.
3. If only one spouse or owner signs the written contract containing the Pre-Lien Notice, you should serve the other spouse or owner with Pre-Lien Notice within 10 days of the contract date by certified mail.
4. Special Note: The Residential Contractor Licensing Law requires that all contracts for residential work be in writing.