SUMMARY OF MECHANICS LIEN LAW FOR THE DISTRICT OF COLUMBIA

Transcription

1 SUMMARY OF MECHANICS LIEN LAW FOR THE DISTRICT OF COLUMBIA Section Contents Pre-lien Notice(s) Introduction 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 9

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 this State you will be writing down dates for at least two documents: a) Mechanic s Lien; and b) 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. PRELIEN NOTICE This state does not require any prelien notice before a mechanic s lien is filed/recorded. MECHANICS LIENS Who is Entitled to a Lien: When to File/ Record: Where to File/Record: A mechanic s lien is primarily for general contractors, subcontractors, laborers, as well as material/equipment suppliers. Only subcontractors, suppliers, and laborers with a direct contract with the general contractor (first tier) can file a lien. Persons in the second tier, such as sub-subcontractors, and suppliers/laborers that have contracts with another subcontractor, are not protected. There are no cases which describe, either way, the entitlement of an architect to a lien. For this reason, we should assume this is not available. See Time Deadlines table. The District of Columbia Recorder of Deeds. Take note that the Recorder has a special form of Notice of Mechanic s Page 2 of 9

3 Lien or sometime referred to as Notice of Intent to Hold a Mechanic s which should be used. The Recorder s Office has rejected those forms which are not on the standard form. That standard form can be secured from the Recorder. How to Serve: Before 2005, by the statute, a general contractors was not required to serve the Notice of Mechanic s Lien ( Mechanic s lien ) to the owner. As of 2005, service to the owner is required by such a general. And, the standard form of mechanic s lien used by the DC Recorder of Deeds requires that the general contractor certify that it has given notice to the owner. For this reason, under section that notice should be sent to the owner by certified mail within five business days of recording the mechanics lien. If the certified mail is not signed and becomes undeliverable, the general is required to post a copy at a visible location on the project. Subcontractors are required ( ) to serve a copy of the mechanic s lien on the owner by personally serving that person or agent (use a process server) if the owner is a resident of the District of Columbia, also within five business days of filing. The actual language states by leaving a copy, which is usually interpreted as personal service. If the owner or agent cannot be found, the mechanic s lien can be served by posting it on the premises. There is no mention of what to do if the owner does not reside in the District of Columbia, but it is presumed the same requirements of personal service would apply. The statute makes no mention of service by certified mail. But, In addition, the standard form used by the DC Recorder of Deeds requires certified mail, return receipt requested, and this should also be done. Amount of Lien: Primarily for unpaid labor, material, and equipment supplied. A subcontractor s or supplier s lien is only good to the extent the owner owes money to the general contractor. If the general contractor is not owed anything, the subcontractors or suppliers get nothing under their lien. Also, if the general contractor on his or her contract is entitled to less than the amount in that contract (legitimate back-charges, defective construction, and other set-offs), then the liens of the subcontractors and suppliers are also reduced by that amount. Further, if the general contractor breaches the agreement and the owner is required to hire others to finish the project, those additional expenses will be deducted from the money due the general contractor and will, accordingly, reduce the liens of the subcontractors and suppliers. Page 3 of 9

4 Everything changes after the owner receives the Notice of Mechanic s Lien filed by the subcontractor or supplier. After receipt, the owner is required to hold back payments to the general in an amount to satisfy the liens. In other words, a lien can then be asserted for the unpaid balance due the general contractor from the owner at the time of receipt of the lien. And, if the owner does make payments to the general after receipt of the lien, he or she does do at their peril. Since there is no such thing as a premature lien, if you have doubts as to whether the money will be filtering through to you as a supplier or subcontractor, the sooner you file the mechanic s lien, the better. The standard form provided by the D.C. Recorder of Deeds allows interest so you should include such amounts. There is no case law addressing the question of whether attorney s fees, delay, acceleration, or disruption damages may be allowed in a lien, so you should not include these items. Property Subject to the Lien: Furnishing Information: A mechanic s lien applies only to private projects. No lien is allowed in public projects against government property. The lien can also go against a tenant s interest in the lease and trade fixtures and the tenant s improvements. But, the lien will not go against the owner s interest if you have a contract with the tenant. On the other hand, since you can enforce your lien against the tenant, this could cause a default in the lease with the owner and might give the requisite pressure, with a threat of eviction, to get the tenant to pay you. Upon request, the general should furnish others with information about the owner so the required notices and lien can be filled out properly. Specifically, the District of Columbia statutes allow the subcontractor to demand from the owner a statement of terms as to the work contracted for and the amount due to the general contractor. If the owner fails to give this information, or willfully states false information, the property is liable to be liened and a subcontractor can enforce the lien as if no payments have been made to the general contractor before notice having been served. Page 4 of 9

5 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 verified notice is all that is required in this state. The mechanic s lien should be both verified and notarized. The biggest priority issue is whether the mechanics liens are in front or in back of the construction mortgage. If the construction mortgage is foreclosed, and it takes priority, it could wipe out the liens. Mechanics liens relate back and take effect when the first person on the job begins work. Anyone else working thereafter has the same lien priority rights. If the construction lender records their loan after the commencement of the work, they have junior priority and the liens prevail. However, if the construction loan is recorded before commencement of work, the lender has priority. The only exception is that the lien has priority over advances made after the lien claimant files a mechanic s lien. When both a general contractor and a subcontractor/supplier have filed liens, subcontractors and suppliers get paid first and then the general contractor. As between the subcontractors and the suppliers, they are on equal footing with the proceeds. Lien Release Bond: After a lien is recorded, the owner may pay into court the amount of the lien and such additional amounts to cover interest and costs, as the court may determine. Or, the owner can record a surety bond, with two or more sureties, approved by the court. Upon the payment of the cash or surety bond into court, the property is released. This means that the lien claimant can then go against that deposit or bond. Miscellaneous Issues: Condos and Subdivisions: The District of Columbia s lien statute does not talk about whether a lien can be filed against a building subdivision or condominiums. For this reason, there will probably be no enforceable lien. If work is done to two or more buildings which are joined together and owned by the same persons, the contractor or supplier need only file one lien. In other words, you do not Page 5 of 9

6 have to go to the time and expense of figuring out how much of your lien applies to one building and not the other. Completion: The completion date is very important because it starts the time running for the filing of a mechanic s lien. Unfortunately, there are no cases in the District of Columbia which clearly define completion. For this reason, you should take a very safe approach. Earlier is better. Special Requirements of the District of Columbia Recorder of Deeds: The recorder may refuse to file your mechanic s lien unless you also have the following: 1) Proof that you possess a valid home improvement license; 2) a copy of the contract; and 3) proof that you are active and in good standing, or are authorized to do business in the District of Columbia. To be safe, take care of all these requirements. Contents of the Mechanic s Lien: Make sure you properly identify the owner in the mechanic s lien or otherwise it can be dismissed. Also, you must describe the lot and square numbers as well as the street address in your lien. The lot and square comes from the grid system used in the District Columbia. Advance Payments by Owner: Sometimes unscrupulous owners pay the general contractor early so as to cut off all lien rights of subcontractors and suppliers. If it can be shown the owner is doing this in bad faith, the subcontractor will win and be able to enforce lien rights to the extent of those payments. This is usually proven when the owner makes payments before they are due under the contract. But, remember, the burden is upon the subcontractor or supplier to prove this, and this is not always an easy task. LAWSUIT TO FORECLOSE LIEN Introduction: 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 filing Page 6 of 9

7 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: Arbitration: Within 180 days after recording the mechanic s lien. In addition, a Notice of Pending Action must be recorded within ten days after the filing of that lawsuit in recorder s office. 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. Need a Lawyer? 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. 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 Page 7 of 9

8 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 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. Page 8 of 9

9 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 9 of 9