Contractors are entitled to mechanic's liens on property where they have done work if they follow certain statutory procedures. This will allow them to enforce payment from owners by foreclosing on the property. The mechanic's lien statute is very specific and must be followed exactly, and if it isn't followed, the mechanic's lien will be invalid and unenforceable.
The following describes the procedures that must be followed by contractors and subcontractors to have an enforceable mechanic's lien and what an owner can do to avoid a mechanic's lien on his property:
a. Contractor's Pre-lien Notice
Every time you contract with an owner of property to do work on that property and you will hire one or more subcontractors (a person who provides labor or materials), you must give the owner a pre-lien notice. If you will not hire any subs, you don't have to give the notice, but it is safer to give it every time in case you later decide to hire a sub.
i. If you have a written contract with the owner, the notice must be included in the contact.
ii. If you have an oral contract with the owner, you must give a written notice within 10 days after the contract with the owner is made.
b. Subcontractor's Pre-lien NoticeIf your contract is not directly with the owner of the property (you are a subcontractor), you must give notice to the owner within 45 days after your first item of work.
c. Details of the Pre-lien Notice
ii. The language of the notices for Contractors and Subcontractors is specified in the statute and are stated at the end of this Memo. You must use this exact language.
iii. The notice must be given to every owner of the property whose interest is recorded or known to you. You must check the county property records to determine everyone who must receive notice.
d. ExceptionsA pre-lien notice is not required in the following situations:
ii. The property is wholly or partially nonresidential, but not agricultural, and it already has more than 5,000 square feet of usable floor space or the new improvements will add more than 5,000 square feet of floor space.
ii. The Statement must be served by personal delivery or certified mail. Mailing by first class mail is not sufficient.
iii. The Statement must be served on the owner, the owner's authorized agent, or the person who entered into the contract with you.
ii. The Statement must be filed in all counties where the property is located.
iii. If the property is abstract, it must be filed in the office of the County Recorder, and if it is torrens, it must be filed in the office of the Register of Titles. If the property is both abstract and torrens, you must file in both offices. iv. Note: You must be sure to have the exact legal description of the property on the Statement, and determine whether the property is abstract or torrens or both.
c. Amount Claimed
ii. Note: Be sure that the amount you are claiming on the Statement is correct.
ii.The Summons and Complaint must be served on all parties after the Complaint is filed.
iii. The Complaint must list as defendants all persons who have an interest in the party, including all owners, mortgagees, and all parties who have filed a mechanic's lien statement.
iv. The Summons and Complaint must be filed within one year after the claimant's last day of work. If you didn't commence the lawsuit but are listed as a defendant, you must file your Answer to the Complaint within one year of your last day of work. If you don't file the Complaint or Answer within the one year period, your lien will be invalid.
ii. All persons who filed a mechanic's lien statement against a property have the same priority, whether they are a plaintiff or defendant in the lawsuit. However, they each have to prove the amount and validity of their own claim.
iii. All of the mechanic's liens attach on the date of the actual and visible beginning of the improvement on the ground. Your lien will date back to that date even if your work didn't start until later.
iv. If the improvements have begun before a mortgage was recorded, all of the mechanic's lien claimants would have priority over the mortgage. If the lien claimants win at trial the property will be foreclosed and sold.
v. If the property is worth less than the total of all of the liens and mortgages, the party with the first priority would be paid first. If the mortgage has priority, the mortgage company will be paid first, and the lien claimants will split what is left. If the mechanic's lien claimants have priority, they are paid first (on a pro-rata basis if the proceeds of sale are not enough to pay them all in full), and the mortgagee takes what is left.
a. Payments to Contractors and Subcontractors.
ii. Monitor the subcontractors and suppliers working on your project so you know who is entitled to be payment.
iii. Before you make a partial or final payment, obtain lien waivers for the work done to date.
iv. Make payments directory to the subcontractors and suppliers, rather that to the contractor (but be sure the contractor knows who your have paid and how much).
If you own property on which improvements are being constructed, you can avoid a mechanic's lien by insisting on lien waivers from your contractor or paying subcontractors directly. An attorney can help you make sure that your payments are used to pay all of the people working on your project.
The above is just a summary of the mechanic's lien laws, and does not cover all of the details. If you have any questions or want more information, please contact me.
Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.
Any person or company supplying labor or materials for this improvement may file a lien against your property if that person or company is not paid for the contributions.
We (name and address of subcontractor) have been hired by your contractor (name of contractor) to provide materials for this improvement. To the best of our knowledge, we estimate our charges will be $_____.
If we are not paid by your contractor, we can file a claim against your property for the price of our services.
You have the right to pay us directly and deduct this amount from the contract price, or withhold the amount due us from your contractor until 120 days after completion of the improvement unless you contractor gives you a lien waiver signed by us.
We may not file a lien if you paid your contractor in full before receiving this notice.
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