Guidelines for use of Mechanics Liens

Mechanic's lien statutes in Minnesota offer a valuable remedy for contractors, subs and  suppliers in cases of payment disputes. It is important to follow the guidelines set forth in the statute to successfully preserve the rights provided by mechanic’s liens.

MECHANICS LIEN NOTICE REQUIREMENTS

One of the important initial requirements is to give notice to the property owner on the project.  There are some exceptions, however.  Notice is not required:
If the project involves an apartment building of more than four units
If the project involves non-agricultural work greater than 5000 sq. ft or improvements that would exceed 5000 sq. ft. on an existing commercial property.
if the contractor owns the property.  (This is the only exception that applies to single-family projects.)

So if a project does not involve one of the three exceptions listed, pre-lien notice is required.

KINDS OF NOTICES:

Different contractors each have their own notice requirements.

CONTRACTOR PRE-LIEN NOTICE REQUIREMENTS

Whenever a project involves subcontractors or materials supplier and there is a written contract with the property owner, the contract must include a Notice with the contract.  This must inform the property owner of several important items:
The owner can pay subs and suppliers directly and subtract the amount paid from the contract price, or withhold the amounts owed under specific circumstances.
Subs or suppliers can file a lien on the property where the work is being performed if they are not paid for their work.

If there is no written contract, there must be a separate Notice, which must be presented to the property owner by certified mail or personal delivery within 10 days of completion of the work.   Notice forms are available from various sources including office supply stores, websites, etc.
Important:  If the Notice is not included in the original written contract, nor provided within the 10 period, an unpaid contractor loses the right to file the mechanic’s lien against the property.

SUB-CONTRACTORS AND SUPPLIERS PRE-LIEN NOTICE REQUIREMENTS

In order to maintain their rights, subcontractors and suppliers of materials must provide pre-lien notice to the property owner, with a description of the services provided or the materials, and an estimate of the cost. 

The notice must also provide the information shown in the Contractor section above.  Again, the notice must be provide by certified mail or personal delivery within 45 days of the start of work or the provision of supplies to the site.
Important -  Even though the notice may be provided within 45 days of starting the project, the sub or supplier may lose their rights within the lien if the notice is provided after the owner pays the contractor in full.  Therefore, the best course of action is to provide the notice immediately after work has begun or supplies have been delivered.

PROCEDURE FOR SERVING PRE-LIEN NOTICE

When a notice will be mailed or delivered in person, the proper form should be completed, then photocopies (both sides).  The original will be mailed or delivered to the property owner and the photocopy kept by the contractor. 

IMPORTANT:  After the form has been provided to the owner, complete the Service Affidavit on the back of the copy that is kept by the contractor.  If the form was provided by certified mail, complete the Affidavit by mail.  Have the signature notarized.  If the form was delivered in person, fill out the Affidavit by Personal Service, and have the signature notarized.  Be sure to keep the notarized copies with the paperwork for the project.

SERVING A MECHANIC'S LIEN STATEMENT

If a contractor, sub or supplier does not receive payment and has completed the pre lien notice, they may serve a Mechanics Lien Statement against the property.  This must be completed within 120 days of the work being completed or the materials delivered to the project.  A contractor or supplier may not return to the job solely to extend the 120 days.  Therefore, it is important to establish proof of the completion date or delivery date and to keep track of the 120 day period. 

The statement itself includes the following:  the owner’s name, the property address, legal description, amount owed, the first and last days for the work completed, the name of the party contracted with and a statement regarding proper completion of notice requirements.

If the contractor, sub or supplier fails to record the Lien Statement within the 120 day period, they lose their rights within the mechanics lien.  Their only course of action at this point would be Civil action in court.

Important:  The statute also requires the lien to be served by certified mail or personal delivery.   It is important to keep good records, get proper signatures and complete all documents in the time frames required.

MECHANIC'S LIEN FORECLOSURE

The contractor, sub or supplier must “foreclose” the lien claim to acquire the protection provided by the mechanic’s lien.  The foreclosure process must be initiated with one year of the last day work was completed or supplies provided.  If the Notice and Statement have been completed by the contractor or supplier on their own, the Foreclosure proceedings should be pursued with the aid of an attorney prior to the deadline for the Foreclosure.  Once the case begins, it will proceed through the legal system until settlement or judgment.  If the contractor, sub or supplier prevails, the property will be sold at a sheriff’s sale and the proceeds used to pay the amount owed.

When compared to a Civil suit, the Mechanic’s Lien offers the contractor the advantage of an earlier hearing date and the ability to collect payment for legal fees.

This content is not meant to constitute advice of any kind, including without limitation, legal advice of any kind. If you require advice in relation to any legal matter you should consult an appropriately qualified lawyer.