THE BUILDER'S OPTION WHEN A SUBCONTRACTOR FILES AN INVALID MECHANIC'S LIEN

At some point every builder ends up with a disgruntled subcontractor. A couple of days after the subcontractor is either fired or walks off the job, a mechanic's lien statement shows up in the builder's mail.

The builder believes little or no money is due the subcontractor, and so there is no right to claim a lien. Often times there is no prelien notice, the dates or timing are wrong, or there are other technical reasons why the lien is not valid. The builder calls me in frustration to ask how they can get that lien off the property.

Minnesota has a fairly liberal mechanic's lien law that is intended to protect both the builder and subcontractor. It is easy to file a mechanic's lien in Minnesota, and that is something we do not want to change. Still, the ease of filing a lien does create abuses.

There is no single, inexpensive, or quick way to remove the lien, but there are ways to get around the lien. First, you need to talk to both the closing company you intend to use and the buyer of the home. Explain to them that the lien is not proper, but that it is your responsibility. This will alleviate any fears that you are in financial trouble.

Next, try to make an agreement with the closing company to close around the lien. Depending upon the builder's financial ability and experience with the closing company, this could mean a deposit equal to 125% of the lien or as little as an agreement by the builder to step in to defend and ultimately pay the lien, if the subcontractor tries to foreclose the lien.

Liens expire at the end of one year from the date of last work as shown in the lien statement unless a foreclosure lawsuit is started. I have found time and again that doing nothing, except closing around the lien, will work in about 95% of the cases because the lien expires in a year.

It is possible to remove the lien through a deposit of cash in the District Court. An owner, or even the general contractor, has the right to deposit money, based on a formula set out in Minnesota law, which is generally 135% of the lien statement. Once the deposit is made, the lien is lifted and it is up to the Court to decide whether the subcontractor gets the money.

I prefer not to deposit in Court for a couple of reasons. First, once you sue the subcontractor to make the deposit, it gives the subcontractor a forum to argue that his or her case has some merit. If you stay out of Court to allow the one year to pass and the lien to expire, it is up to the subcontractor, and not the builder, to start the Court action.

I have also found that once money is deposited, a District Court Judge is likely to award some cash to the subcontractor. Cash on deposit in Court means that a District Court Judge, whose docket is filled with crime and family law, does not have to spend much time learning mechanic's lien law and thinking about your problems. A simple division of the money gets everybody out of the way, and is one less case on an overcrowded Court docket.

If you do end up in Court with a subcontractor who has clearly filed an invalid lien, it may be possible for you to recover damages and attorney fees. Filing a Mechanic's Lien that prevents a closing puts the subcontractor in jeopardy of paying the damages for the cost of the delay or cancellation of the sale. Courts have also ruled that a property owner is entitled to recover attorney fees.

Mechanic's Lien laws in Minnesota are working for contractors, but abuses can arise. The best course of action if a lien is filed against your project is to do everything possible to close around it and ignore it. Unless the subcontractor files a foreclosure lawsuit, the lien will expire in one year. That is how I find most of these to be solved. As always, consult an attorney well versed in mechanic's lien law before you take any action.

©2003, Rinke-Noonan Law Firm and David J. Meyers, St. Cloud, Minnesota.

David J. Meyers is licensed to practice law in the Minnesota State and Federal Courts. He is certified as a real property law specialist. He is a former BAM president and currently serves on the CMBA Board of Directors