IOWA MECHANIC S LIEN LAW UPDATED FOR 2016

Transcription

1 IOWA MECHANIC S LIEN LAW UPDATED FOR 2016 Go to: Iowa Mechanic s Lien Forms More Info: Section Contents Pre-lien Notice(s) Name of Notice Who Must Use This Notice When How to Serve Verified or notarized? Section Contents Iowa Mechanic s Lien Who is Entitled to a Lien? When to File/Record Where to File/Record How to Serve Amount of Lien Property Subject to the Lien Furnishing Information Verified or Notarized Priorities Lien Release Bond Miscellaneous Issues Page 1 of 16

2 Section Contents Lawsuit to Foreclose Lien Introduction When Where to File Arbitration Need a Lawyer? Iowa Mechanic s Liens--General Notes Be Careful: The courts consider a mechanic s lien to be a privilege and not a right. You receive its benefits only if you strictly adhere to the state law requirements. Bottom line: miss a deadline by one day and you have lost it. Unlike other areas of the law where you can argue equities, find technical exceptions, and lawful excuses, there is no forgiveness here. In this case, knowledge is not only power, it s a necessity. In Iowa you will be writing down dates for at least five documents: a) Notice by Supplier of Labor or Material to a Subcontractor; b) Notice to Owner; c) Notice by Subcontractor to Residence Owner; d) Iowa Mechanic s Lien; and e) lawsuit to foreclose the mechanic s lien. Write down all the deadlines in your calendar. Use a highlighter or red pen. If you have a staff, use a fail safe system by doubling up and putting it in their calendar also. This reminds you twice. The first calendar entry should be two weeks before the due date as a preliminary reminder. On the second calendar entry, do a white lie to yourself. Put the due date as one week before it is actually due as insurance in case you get busy or need legal advice. Time is money. You will waste a lot of valuable time running around and doing it at the last moment, as opposed to doing it early. NEW FILING REQUIREMENTS OF THE STATE CONSTRUCTION REGISTRY Effective 1/1/2013 RESIDENTIAL ONLY A major change is scheduled to be implemented in January of 2013 in this State for the filing of pre-lien notices and mechanic s liens on residential construction Page 2 of 16

3 (new construction and repair/remodel/renovation of existing residential). In the past, an Iowa mechanic s lien was filed with the clerk s office in Iowa s 99 counties. But in 2013, the Iowa Secretary of State will set up a centralized online filing system known as the Iowa State Construction Registry ( or ). Similar to what has been set up for years in Utah, all filings with be done online. Further, the Secretary of State will have free online forms to fill-out. Although you can send them in manually (posted within three days of receipt), it is recommended they be done electronically. The Secretary of State s site will be set up as of January 1, Using this system is mandatory, and the local clerk s offices will no longer accept filings on residential projects. Unlike the system in Utah where only preliminary notices are done online with mechanic s liens filed with the local recorders, now preliminary notices and mechanics liens will be done online for residential projects. Note the Registry does not apply to commercial projects. All forms and mechanics liens are filed or served as in the past and outside the Registry. RESIDENTIAL PROJECTS Pre-lien Notices This state requires Notices be sent out before the Iowa mechanic s lien is filed/recorded. For simplicity, this notice will be referred to as a Prelien Notice. The basic information on these Notices is as follows: NOTICE TO OWNER (General Contractors Only) Who Must Use this Notice: Only the general contractor who has a direct contract with the owner for residential construction services. For this type of residential construction, the general contractor must give notice to the owner that mechanic s liens can be recorded by subcontractors and suppliers if they are not paid. This allows the owner to protect himself or herself against those mechanics liens. It is highly recommended that this notice be included in your contract with the owner. The new language effective January 1, 2013 must be in boldface type and not less than ten points in size: Page 3 of 16

4 Persons or companies furnishing labor or materials for the improvement of real property may enforce a lien upon the improved property if they are not paid for their contributions, even if the parties have no direct contractual relationship with the owner. The mechanics notice and lien registry ( or ) provides a listing of all persons or companies furnishing labor or materials who have posted a lien or who may post a lien upon the improved property. The old notice to owner forms were usually incorporated into the general contractor s written contract. If there was no written contract, there was a requirement of giving a separate notice called: Notice by Principal Contractor on Residential Property of Intended Subcontractors. This was be served on the owner by certified mail within 10 days of starting work. It also require the general contractor to supplement and give further notice to the owner if for new or additional subcontractors were taken on. This is almost like a penalty for the failure to enter into a written contract with the owner. It was pursuant to old Section (2). As of January 1, 2013, this is no longer required, even if the general does not have such a written contract with the owner. Now under (A)(3) an owner gets notice of the names and addresses of all subcontractors through two new sources: 1) through the Notice to Owner form which is usually included within the contract indicating the state construction registry has a listing of subcontractors and 2) after posting the Notice of Commencement, Secretary of State sends out a statement to the owner indicating that all subs will be registered on the web site and cautions the owners to use lien waivers to protect against double payment. When: How to Serve: Before commencing work. Include as a provision in the contract between the owner and general contractor. If not, serve on the owner by certified mail, return receipt requested. Page 4 of 16

5 Verified or Notarized?: The notice need only be signed by the general contractor, and therefore, does not have to be verified or notarized. NOTICE BY SUBCONTRACTOR TO RESIDENCE OWNER ( Preliminary Notice ) Who Must Use This Notice: All contractors, subcontractors, laborers, as well as material/equipment suppliers who do not have a direct contract with the owner or owner s agent must use this form. For example, a general contractor with a direct verbal or written contract with the owner who acts as the prime is not required to give this notice. This notice informs the owner of the existence of a sub or supplier that the owner would otherwise not know. It states the sub/supplier has lien rights if not paid and warns the owner to protect itself, including the use of lien waivers. Contents: Cost: When: The notice will be in one of the official forms online with the Secretary of State. It will be similar to the information in previous preliminary notices, including such matters as: the name of the owner; state construction registration number; the claimant s name, address, and phone; the name, address, and phone number of the person you contracted with; the common street address of the property; the legal description; tax parcel ID number; and the date labor or materials were first furnished. Under new section , the Secretary of State may not charge a filing fee for more than the actual cost of certified mail, return receipt requested, upon the owner. There is no time limit, but you only receive an Iowa lien for unpaid work done after posting the Notice on the Registry. It is highly recommended it be posted as early as possible. If it is not filed, no mechanics lien is available. It cannot be posted on the registry until after the general contractor posts the Notice of Commencement. On the other hand, if the GC does not do this, the sub or supplier is entitled to file the Notice of Commencement. Page 5 of 16

6 How to Serve: Under the old law, the subcontractor would serve the owner by certified mail, return receipt requested. Now the Notice is filed online and the Secretary of State who takes care of the mailing certified to the owner. COMMERCIAL PROJECTS Pre-lien Notice NOTICE BY SUPPLIER OF LABOR OR MATERIALS TO A SUBCONTRACTOR (Sub-Subcontractors and Suppliers of a Subcontractor-Commercial projects only) Note: Not Filed With the State Registry: Pre-lien notices are only filed with the Iowa Secretary of State s online Registry if they relate to residential work. Do not file this Notice with the registry for commercial projects. Who Must Use this Notice: Anyone furnishing labor or materials to a subcontractor. This would include a sub-subcontractor as well as a material/equipment supplier to a subcontractor. The notice informs the general contractor of the identity of sub-subs and suppliers of subs so the general can take action to prevent liens for example insisting on lien waivers from these persons. This prelien is only required on commercial and industrial property. There is no need to serve the notice if you are working on a single-family or two-family residential dwelling. The Notice is not required for a general contractor or a first-tier subcontractor having a contract with the GC. Later, when the sub-sub or supplier to a sub files its Iowa Mechanic s Lien, at the same time, it must file a form called Certification of Notification. This states under oath with a notarized signature, that the notice called Notice by Supplier of Labor or Materials to a Subcontractor was served on the general within 30 days of supplying the labor or materials. Page 6 of 16

7 When: How to Serve: Verified or Notarized?: See Time Deadlines. Iowa statutes do not describe how this notice is to be served. It is recommended that it be served on the general contractor by certified mail, return receipt requested. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. This notice need only be signed and does not have to verified or notarized. IOWA MECHANICS LIENS Note: For Residential and Commercial Projects File with the Registry: Use the State online Registry for the posting of mechanic s liens after January 1, 2013, for both residential and commercial projects. Who is Entitled to a Lien: An Iowa mechanic s lien is primarily for general contractors, subcontractors, laborers, as well as material/equipment suppliers. This also includes persons who perform grading, sodding, installation of nursery stock, landscaping, sidewalk construction, fencing, and a wide gamut of other construction services that go into a construction project. The lessors of construction equipment receive a lien only for the reasonable value of the equipment during the period of actual use and any reasonable periods of non-use (if described in the rental agreement). Delivery of the equipment or machinery to the job site gives a presumption that it was in use as of the date of that delivery. Liens also covers off-site labor and materials necessary for the delivery of labor and materials to the construction site, when the contract calls for such off-site work. For example, if a landscape contractor were to do preparatory work and furnish material to prepare trees and shrubs for delivery, this work would be lienable. Further, when a contract between the subcontractor and the owner, requires the latter to be paid for board, lodging, and mileage, this can also be included. Page 7 of 16

8 Specifically, a company providing concrete forms to the site is entitled to a lien, and trustees of health, welfare, and pension trusts or plans are entitled under the statute to file lien claims for unpaid benefits (for example, if a subcontractor was obligated to pay his or her employees such benefits). Design professionals, such as architects, engineers, and surveyors, are not mentioned under the lien statutes, so this is a gray area. A supplier of gasoline and petroleum products to a Of that a year you contractor is not entitled to a lien because this is considered too remote. With the new legislation in 2006, the legislature has made it known that mechanic s liens are only allowed if you have a contract with the owner, general contractor, or a subcontractor. This means that Sub-sub-subcontractors are not entitled to a mechanic s lien. When to File/ Record: See Time Deadlines table. Since it is recommended you file an Iowa mechanic s lien with the Registry within 90 days of completion, you can imagine how important that definition is when disputed by the parties. In most states, call back or warranty work does not extend the time. However, in Iowa, punchlist or warranty work does extend the completion date. However, the courts are not stupid. If you perform work or supply materials a substantial period after completion just to extend the time period, the court will be wise to what is going on and deny the extension. However, if you have a special order of materials that come in late and well after substantial completion, which is not your fault, that installation would extend the time period. In most states, if you do not file your mechanic s lien on the required date, you lose all rights and cannot make a claim for any compensation. Iowa is much more liberal. You have 90 days from the last furnishing of labor or materials to record your lien but you also can file it late (but not recommended). Although you do not relinquish your lien rights, there is a penalty in filing late: you only receive a lien for the balance owed from the owner to the general contractor at the time of the lien filing. If money is left, you still have rights to that extent. However, if the owner has already paid everything to the general contractor under the contract, you lose out. Page 8 of 16

9 Most significantly, the owner is not required to pay the general contractor until 90 days following completion (see more on this below under Prompt Payment Statute ). For this reason, most owners would not even consider making a final payment until after that 90th day. If they do, and later on a subcontractor records a Mechanic s lien because they have not been paid by the general, the owner is out of luck and will have to pay twice. Probably one of the worst nightmares for an owner would be the following scenario. The project is complete and the owner decides to make final payment to the general contractor approximately 60 days after completion. No liens by subcontractors have been recorded and the owner makes the assumption that no further claims will be asserted. Then, all the sudden, two weeks later, a subcontractor files a lien. Because it is within the 90th day, the owner will have to pay twice. But there is a major exception. And this has to do with the fact that contractors in Iowa frequently use lien waivers. The general contractor can be paid before of the 90th day if he or she delivers to the owner lien waivers from the subs and suppliers. The only catch is that there must be lien waivers for everyone or the owner will not make payment. The other exception is payment can be made within that 90 day period, without fear of double paying, if the general contractor has taken out a payment bond. There is also a penalty under section if you post your mechanics lien beyond the 90 day period after completion. If you post before that date, the Secretary of State will mail notice to the owner. If it is after this period, you must handle the certified mailing yourself. There is considerable of confusion as to the exact cut-off date for filing an Iowa mechanic s lien. In other words, not the recommended date, but the drop-dead date such that if you file thereafter, you have no rights whatsoever to a mechanic s lien. For many years, Section indicated the lien should be filed within 90 days from your last furnishing labor or materials. But then section and indicated that you could file after the 90 day period, but would only receive a lien for the unpaid balance due at the time between the owner and general contractor. It literally met you can file time years later, but obviously there would be little money available if you waited that long. For this reason, almost all attorneys recommended the lien be filed within 90 days. This supposed open ended time has been curtailed by a new section which indicates the lien can never be filed, under any circumstances, beyond Page 9 of 16

10 the period of two years plus 90 days after last furnishing labor or materials. Where to File/Record: How to Serve: File with State Registry of the Iowa Secretary of State s Office ( or ), not the clerk of the district court in the county in which the project is located. Under previous law, the Iowa lien claimant who files it s mechanic s lien and Verified Statement of Account did not have to do the service. After filing, the Clerk of the Court would provide notice to the owner. Now after posting on the Registry, the Secretary of State serves the owner. The only exception is if the lien claimant files his or her lien late (general, sub, or supplier). This type of notice, known as the Notice of Mechanic s Lien Claim Delayed Filing, must be served on the owner by the lien claimant. It is recommended that this be served by certified mail, return receipt requested. This means that if you fail to file your lien on time, all is not lost. You can file a late lien, but you are only entitled to enforce it to the extent money is still owed from the owner to the general contractor. If you wait too long, the owner will have paid the general contractor the full amount owed and your lien will not be any good. Amount of Lien: Primarily for unpaid labor, material, and equipment supplied. A successful lien claimant, in receiving a judgment in court after foreclosing the lien, may be entitled to reasonable attorney s fees. However, this is in the discretion of the court. If the owner of an owner-occupied dwelling successfully challenges the Iowa mechanic s lien in court, they may also receive reasonable attorney s fees and damages. If the court determines the mechanic s lien was filed in bad faith, or the supporting affidavit was materially false, the court can award reasonable attorney s fees plus an amount not less than $500, or the amount of the lien, whichever is less, against the lien claimant. However, this is a rather severe remedy and only applies if the lien was intentionally and materially false. The court will not punish you for reasonable mistakes. Court costs can also be awarded to the successful party in the lien foreclosure lawsuit. If your contract so provides, you can also receive prejudgment interest. Page 10 of 16

11 A subcontractor or supplier can recover under a mechanic s lien only for the balance owed the general contractor by the owner. If the owner has paid everything or does not owe anything to the general, the subcontractor s/supplier s lien cannot be enforced. This also means that if the owner can prove the general contractor either failed to complete the work or defectively performed it s services, there will be a setoff for the alleged contract amount owed. This would the cost to repair or complete. Also, the contractor may only be entitled to the reasonable value of the work performed, as opposed to the balance under the contract, especially if that person did not substantially perform under his/her contract. All of this could limit the amount of the lien of a subcontractor or supplier. Unlike most states that merely require a general statement of what is owed in the Mechanic s Lien, Iowa has strict rules or detailing exactly how you came up with that amount owed. Actually, the claimant files two forms: A Mechanic s Lien with the basic information of the parties to the project, when the services were performed etc. and a separate Verified Statement of Account. The latter form usually attaches copies of unpaid invoices and a summary of account in other words, the running charges, dates, partial payments, and balance. Property Subject to the Lien: An Iowa mechanic s lien applies only to private projects. No lien is allowed in public projects against government property. A lien can also be against a tenant s interest in the lease or lease improvements. This means you could actually sell the lease, if it had any value, as well as leasehold improvements and trade fixtures. But, you cannot get a lien against the landlord s interest, unless that person expressly, or by implication, required the tenant to make improvements under the lease and that this was for the benefit of the landlord. Being for the benefit of the landlord usually means that the improvements stay with the property after the lease terminates. When filing with the State Registry, you must include the tax parcel ID number for the property. Typically you can obtain this information from the county assessor s office. Lien Against a Tenant: Iowa has an interesting statute, namely 572.6, if you are doing any tenant improvement work. An example, would be constructing or renovating a restaurant in a shopping center. If the tenant s lease is forfeited for nonpayment of rent or Page 11 of 16

12 any other breach of lease, the lease is terminated and the tenant will have to vacate. But what happens to the improvements you have constructed? The statute indicates your lien can then be against those actual improvements now in the hands of the landlord. In essence, your lien has been transposed from a lien against the leasehold interest to a lien against the real property itself with its improvements. This gives you a great bargaining chip in negotiating with the landlord. But remember, this is only if the tenant s interest has been forfeited. Furnishing Information: Upon request, the general should furnish others with information about the owner so the required notices and lien can be filled out properly. Priorities: A mechanic s lien has priority over the construction lender under a mortgage, as long as some work has started on the project before the recording of that mortgage. However, the construction lender, or other mortgage holder, will have priority over the mechanics liens if it s instrument is recorded before commencement of work. In most states, it does not make any difference which contractor files his or her lien first, since all contractors and suppliers share equally under their liens. The rule is different in Iowa. The persons who file their liens first have priority over the others. It is basically first in time, first in right. Lien Release Bond: The owner may file a bond for twice the amount of the lien claimed and thereby discharge the lien from the property. The lien claimant will then continue prosecuting his or her action, and if successful, will have a claim against this bond. Miscellaneous Issues: Demand by Owner to Bring Action to Foreclose Mechanic s Lien: A lien claimant has 2 years to bring a lawsuit to foreclose the lien after the expiration of the time in which to file a mechanic s lien. The owner can speed up this process by making a demand on the general contractor to bring the lawsuit within 30 days of receipt. By all means, if you receive such a notice, make sure you file your lawsuit within that 30-day period. Page 12 of 16

13 Remember also that a general contractor can make a similar demand of a subcontractor or supplier. As of 2007, only the owner can give this demand. According to the new legislation, the general contractor would not be able to serve such speed-up notice. Subdivisions: If you are working in a subdivision and have a single contract, you may file one general lien covering all the buildings and lots. On the other hand, you have the option of filing separate liens for the value of services performed to each of the individual lots. Prompt Payment Statute: Most states have provisions on the books that a sub or general is to be paid within a relatively short period of time for progress and final payments. In other words, it is not fair for such persons to become the bank and have to subsidize the project. They need to have the cash flow to pay their labor and materials. Iowa goes in the wrong direction through new Section A effective January 1, It is jokingly considered a nonprompt payment statute jurisdiction. Most states require an owner to pay a general and a general to pay a sub within 10 to 30 days after an installment is due. In Iowa, the owner has up to 90 days from completion to make payment. You guessed it owners use this to their advantage and wait until the last minute. But it gets even worse. The owner is required to pay within a shorter period of time only if the general furnishes: 1) all receipts for labor and materials for its operations as well as the subs, 2) waivers from all persons furnishing material and labor, and 3) only if the general posts a surety bond to be approved by the owner to hold that person harmless from any mechanic s liens that may be filed. Incredulously, item 3) does not mention a limit to the amount of the bond--it could technically mean the owner could require an amount to cover every potential subcontractor lien. It also gives the owner the absolute right to insist upon any terms of the bond. The only state allowing such a harsh result. Page 13 of 16

14 LAWSUIT TO FORECLOSE LIEN Introduction: Your Iowa lien is not valid forever. Because it directly affects the owner s title, it has a limited shelf life and must be enforced within a short period of time. That enforcement is done by filing a lawsuit to foreclose. Just like the time deadlines for a Pre- Lien or Mechanic s Lien, the courts strictly construe these time limits which are called statutes of limitation. Again, if you are literally one day late, the lien is ineffectual. When: Where to File: Arbitration: Within 2 years from the 90-day expiration date for filing a mechanic s lien. In other words, this would be 2 years and 90 days from completion of the project after your portion of the work. District court in the county in which the project is located. Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry. Arbitration is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding with the same general rules of evidence, but more informal. On the other hand, you can only foreclose your lien through a court proceeding, not arbitration. So, how do you keep your arbitration rights and at the same time preserve your lien rights? Simple. You bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment. Attorney s Fees: Under former law, if there is a lawsuit as to the mechanics lien, attorneys fees were awarded the prevailing party. But only in favor of a general contractor. Now the law as of January 1, 2013 has been equalized so either the general or sub, as the prevailing party, is entitled to reasonable attorneys fees and costs. Page 14 of 16

15 Need a Lawyer? In this country, every individual has the statutory right to represent themselves. This means they can prepare all necessary papers, appear at hearings, and actually try the case. In so doing, the court considers you to be acting either in pro se or pro per. Before making this decision, consider the following factors: 1. You are a professional and thoroughly know the ins and outs of not only the construction industry but of the project itself. The best lawyer on his or her best day will probably not know more than 50% of what you know. 2. How is your public speaking abilities? If you are uncomfortable speaking to a group, you will even more uncomfortable in court or arbitration. You could be the sharpest wit in town but may not be able to present your arguments. Remember, appearing uncomfortable is perceived as having deficiencies in your case. People usually think that if you are not comfortable about your own facts, then they must not be that strong. 3. If the other side has a lawyer, you might want to think twice about representing yourself. You will certainly know the facts quite well, but you may be blindsided by legal technicalities. 4. You may also want to think twice if this is a really nasty and emotional case. In other words, if the other side is going for blood. Having a lawyer can shelter you from this emotional trauma. No matter how strong you are, lawsuits are taxing not only on your time, but on your physical and emotional energies. 5. If you have a good case in which you have complied with technicalities and performed good work, you are essentially engaging in a collection action. These actions are typically very simple because there are few defenses or defects alleged by the other side. It makes it easier for you to represent yourself because it is more a question of when and how much they will pay as opposed to whether you will win at all. 6. If you have a binding arbitration provision, you may consider representing yourself. These proceedings are much more informal and the arbitrator tends to give you more Page 15 of 16

16 leeway. There are also fewer rules and not they are usually not quite as strict. 7. You could consider representing yourself but get advice along the way from a lawyer. It is much cheaper that way. On the other hand, the lawyer cannot watch over every move and you might slip up. Many times lawyers can also help you with preparing the forms, simply putting your name on the pleading. You can also bring in your lawyer at the end to actually try the case. 8. Judges and courts do not give legal advice. They only help you with what forms to use. However, clerks can be invaluable in steering you in the right direction as far as where to file, time limitations, the nature of the form or pleading, etc. But, remember when it comes right down to the ultimate advice, they cannot help you. 9. Judges usually treat you the same as an attorney which means they expect strict compliance with the rules. Although some judges give you more slack, don t count on it. 10. The biggest dilemma is whether you should hire an attorney for a smaller case, typically in the $5,000 to $10,000 range. You have to watch this because you may eat up that amount in attorney s fees. You never make money on lawsuits, only lawyers do. Try to settle for the best price you can get and move on. Prepared by: Thank you for your business. Page 16 of 16