SUMMARY OF MECHANICS LIEN LAW FOR RHODE ISLAND. With Revisions Through Section Contents Pre-lien Notice(s)

Transcription

1 SUMMARY OF MECHANICS LIEN LAW FOR RHODE ISLAND With Revisions Through 2011 Section Contents Pre-lien Notice(s) Name of Notice Who Must Use This Notice When How to Serve Verified or notarized? Section Contents 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 Section Contents Lawsuit to Foreclose Lien Introduction When Where to File Arbitration Need a Lawyer? Page 1 of 11

2 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 Rhode Island, you will writing down dates for at least three documents and/or events: (a) serving the Notice of Intention to Do Work or Furnish Materials, or Both; (b) filing the Notice of Intention to Do Work or Furnish Materials, or Both; and (c) lawsuit or petition to enforce 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 Afail 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 PRE-LIEN NOTICE TO OWNER Name of Notice: Notice to Owner (also known as Notice of Possible Mechanics Lien) Who Must Use this Notice: As of 2006, there is a new requirement of serving a prelien notice near the beginning of the job. It applies only to persons who have a direct contract with the owner or tenant of the project, whether you are a general contractor or subcontractor. This notice informs the owner of the possibility that a mechanic s lien can be recorded against the property if steps are not taken to ensure payment and the signing of lien waivers. Hence, if your contract is with the general contractor or another subcontractor, there is no need to serve this Notice. However, you will still need to serve the Notice of Intention to Do Work Notice, as seen in the next section. Page 2 of 11

3 However, material suppliers, whether or not they have a direct contract with the owner, are not required to serve this Notice. When: Within ten (10) business days of your first furnishings labor or materials to the site. How to Serve: Serve the owner by certified mail, return receipt requested. But what if the general contractor does not serve this notice? All is not lost, because subcontractors still retain their lien rights, assuming they serve the required Notice of Intention to Do Work. However, a general contractor may be penalized for not serving this Notice. If it is not served, there is the risk the owner will pay the general contractor under the contract without knowing his or her rights. If the general contractor does not in turn pay a subcontractor and that person files a mechanic s lien, the owner has the option of paying the subcontractor directly. If that occurs, the owner will turn to the general contractor for indemnification and ask to be reimbursed for any double payments made as well as costs and attorneys fees. It is therefore crucial that a general contractor serve this Notice. Form and Content: Verified or Notarized? The Notice must be in writing. State law pre-determines its content and you must include certain mandatory language. Because of this, by far the best approach is to use a standard form so you do not leave out the required information. 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 does not need to be notarized or verified. PRE-LIEN NOTICE OF INTENTION This state requires the lien claimant to send to the owner(s) a notice the claimant intends to or has performed work and that a mechanic s lien can be filed if that work is unpaid. It is like a warning shot, informing the owner(s) that if payment is not made, a lien will follow. Page 3 of 11

4 Most states have a separate prelien notice, followed by a second and separate mechanic s lien. In Rhode Island the prelien notice and the lien itself are one document. This notice of intention is first served on the owner(s) and if non-payment continues, the same notice is then filed for recording and, at that time, becomes a mechanic s lien. Thus, when reference is made to a mechanic s lien, this refers to the same notice of intention but in that case, it has been filed with the recorder s office. Name of Notice: Notice of Intention to Do Work or Furnish Materials, or Both ( Notice of Intention ) Who Must Use this Notice: In most states, only subcontractors and suppliers are required to serve a prelien notice. General contractors are not required to do so because they have a direct contract with the owner(s) who already know(s) of their existence. Rhode Island is different. Everyone, whether a general contractor, sub, laborer, or material/equipment supplier, sends out the same prelien notice in the form of the Notice of Intention. But, the rules are slightly different as to architects and engineers, which will be discussed below. So, in summary, anyone who might file a mechanic s lien upon the project serves the same Notice of Intention and under the same time periods. The person signing the Notice must have first hand knowledge of the construction and amounts owned. This differs from the rule in other states where anyone the office can sign or even an attorney. This loose rule does not apply in this State When: Note New Law (200 days as opposed to the old 120 days): See Time Deadlines table. The Notice of Intention is both served by certified mail and filed with the Records of Land in the city or town in which the project is located. It need not be served at the beginning of the project. Instead, it can be served at any time, whether in the beginning, during the course of construction, or after completion. But it only covers a claim for unpaid services performed for 200 days before filing the Notice. Previous law stated it was 200 days before the certified mailing. Now it is 200 days from the filing with the Records of Land. Page 4 of 11

5 Make sure you have the full and incorrect name of all owners on the Notice or the clerk of the Records of Land may reject it. In most cases this will not be a problem because few people allow that much time to go by without being paid for their services. So, in the usual situation, the Notice could be served/filed shortly after completion when it becomes known that the claimant is not going to be paid. For example, if you finish your work on June 1 st and have been unpaid for the months of April and May, serving/filing the Notice of Intention anytime in July of that year would cover the delinquency because of the 200-day look back period. In fact, the recommended procedure is not to wait much more than one month after completion before serving the Notice of Intention. There is simply no reason to wait any longer. Assume the same example applies you finish your work on June 1 st but have been unpaid for the period April 1 st through June 1 st. You do not have to worry about the work performed before April 1 st because you have been paid for that period. You have to serve/file the Notice of Intention within 200 days of April 1 st. Remember, it is 200 calendar days (as opposed to working days). Different months have different numbers of days and, therefore, you should be very careful. The time periods for architects and engineers are different. They must serve the Notice of Intention within 200 days of the performance of their work (for example, plans, specifications, and contract documents), or 10 days after the actual and visible commencement, by excavation or otherwise, of the construction or alteration. How to File/Serve: Serve by certified mail, return receipt requested, on the owner(s) of record of the land at the time of the mailing. Also file with the Records of Land in the city where the project is located. If the work involves tenant improvements, the Notice of Intention should be served on the tenant. Mailing is made to the last known residence or place of business of the owner or tenant and if no such address is known, to the address of the project. How many notices must be served? Is there a requirement of serving/filing an updated notice that has additional amounts unpaid? Assume you serve the Notice of Intention on May 1 st, Page 5 of 11

6 which covers the delinquency for April, but you continue working through June 30. July rolls around and now you are unpaid for May and June as well. Should you serve another Notice of Intention in July which covers the months of April, May and June? Yes. Remember, the Notice of Intention is the same document that is going to be recorded as a mechanic s lien and must contain all the up-to-date delinquencies. For this reason, you should wait until the completion of the job and the determination of the total amount that is owed before you serve the Notice of Intention. This will prevent having to do it two or three times. On the other hand, nothing prevents you from serving/filing the Notice of Intention earlier or even at a time in which there is no delinquency. It covers non-payment of services performed within 200 days of the notice and everything that may be unpaid thereafter. But serving the Notice of Intention before you have determined the final amount owed makes little sense. It is a much more powerful device if you are informing the owner exactly how much is unpaid and that you intend to file a mechanic s lien on that basis. If the Notice of Intention is not signed and returned by the owner, (certified mail is returned) this Notice and the returned envelope is filed in the Records of Land in the city or town in which the project is located within 30 days after it s return, but in no event more than 200 days after the mailing. Form and Content: Verified or Notarized? The Notice must be in writing. State law pre-determines its content and you must include certain mandatory language. Because of this, by far the best approach is to use a standard form so you do not leave out the required information. Specifically, the Notice of Intention says that you may, in the future if there is non-payment, file it in the Records of Land and that the mailing and filing of the notice will constitute a mechanic s lien against the property. 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. A verified and notarized notice is required in this state. Page 6 of 11

7 MECHANICS= LIENS Who is Entitled to a Lien: A mechanic=s lien is primarily for general contractors, subcontractors, laborers, as well as material/equipment suppliers. But it also covers architects and engineers. Recent amendments make it clear that equipment suppliers that rent or lease are covered as well. Unlike some states that limit the lien claimant to certain tiers, any person or entity who confers labor, materials, or equipment to the job site, regardless of how remote they are, or down the line from the general contractor, are covered. Therefore, there is no distinction between classes of potential claimants. The only limitation is that the owner or tenant must have consented to the work being done. When to File: See Time Deadlines table. It is easy to remember this deadline because it is the same as the Notice of Intention. In other words, the Notice of Intention, which serves as both a prelien notice and the mechanic s lien, is served and filed within 200 days of performing the services upon which the claimant is unpaid. In other words, your first send it to the owner, warning it will be recorded in the official records and be against the property if not paid. If it is not so paid, you go ahead and record it. But should you wait for a certain period of time after serving the Notice of Intention to actually record it? If the total amount is already in the Notice of Intention and you have completed the project, there is no reason to wait go ahead and file it. In fact, you can serve and file at the same time. Where to File: The Notice of Intention is recorded in the Records of Land Evidence in the city or town in which the project is located. Amount of Lien: Primarily for unpaid labor, material, and equipment rented or supplied. Also includes interest accruing from the date the Notice of Intention is filed. The claimant includes not only the actual costs of labor and materials furnished, but also reasonable profit and overhead for the work performed to date. Under section , the lien may include all retention earned but not paid. The other words, if you have a balance owed of $10,000 with a 10% retention, you would record a lien for $10,000 and not $9,000. Page 7 of 11

8 Property Subject to The Lien: A mechanic=s lien applies only to private projects. No lien is allowed in public projects against government property. The lien is against any building, canal, turnpike, railroad, or other improvement that is constructed, erected, altered, or repaired by an oral or written contract with an owner or tenant, together with the land itself. A lien may also be against a tenant s interest if there is tenant improvement work. This can be based upon the oral or written request to perform the work by the tenant. However, under Section the owner s or landlord s interest is not subject to a lien unless there is consent in writing... assenting to the construction.... Such consent might be found in the lease which could authorize the tenant work usually done at the beginning of the tenancy. However, most landlord attorneys would word it so there was authorization, but not consent. There can also be letters or s by and between the landlord and tenant expressly or impliedly consenting to the work, but this is something the contractor would not have knowledge. The point is, it might be hard for the contractor to assert a lien against the owner s interest in this State. For example, in some states such as California, the landlord s mere knowledge of the improvement without recording a Notice of Non-and the the Responsibility would subject the property to a lien. Verified or Notarized?: Priorities: 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. A notarized and verified notice is required in this state. All mechanic s lien claimants enjoy the same priority and it does not make any different who files first. If there are not sufficient funds upon the sale of the property to pay everyone, they share pro rata. In many states, the priority of the mechanic s lien relates back to the start of construction. If a lien, mortgage, or construction loan is recorded after construction starts, the mechanics liens have priority. It is different in Rhode Island. It depends upon who records first. The mechanic s lien has priority only if it is recorded before the mortgage or encumbrance. For example, assume construction starts on March 1 st with demolition. The construction loan is recorded on March 10 th Page 8 of 11

9 with the first mechanic s lien being recorded on August 1 st. In many states, the mechanic s lien gets preference because it relates back (as of March 1 st ) to the start of construction which was before recording of the construction loan. It is different in this state and the construction loan would have preference because it was recorded before the mechanic s lien. Lien Release Bond: At any time after the Notice of Intention or the petition to Enforce the Mechanic s Lien (the lawsuit to foreclose the lien), the owner or tenant may deposit into the Registry of the Court the total amount of the mechanic s lien claim. A surety bond may also be deposited in lieu of that cash payment. This has the effect of removing the lien from the records and dismissing any lawsuit to enforce the mechanic s lien. Once a bond is filed or payment is deposited with the court, the general contractor may motion the court to allow that money to be withdrawn and paid to the general contractor, but before doing so, the general must put up a bond to protect the owner against a later finding in court that all or part of the money is not owed. The problem with this procedure is that many bonding companies require full collateral, and the general contractor might be putting up as much money for the bond as he or she is receiving from the court. Once the bond is posted, the lien claimant continues the suit against the bond company. LAWSUIT TO ENFORCE LIEN Introduction: When: Where to File: Your 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 a petition to enforce the mechanic s lien. 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. Note New Law: The lawsuit must be filed within 40 days of the date of recording the Notice of Intention. In the superior court of the county in which the property is located. Page 9 of 11

10 Arbitration: 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. 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. Page 10 of 11

11 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. 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 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. Page 11 of 11