OKLAHOMA MECHANICS LIEN LAW With Changes in 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
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 five documents: a) Homeowner Notice; b) Pre-Lien Notice; and c) Notice of Lien for Leased or Rented Equipment; d) Lien Statement; 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 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. HOMEOWNER NOTICE Introduction: When: Who Serves this Notice: How to Serve: A special statutory notice is required to be served on the owner of property subject to a home improvement contract, in other words, work on a structure which is used as a dwelling. Liens are not allowed against that property unless that notice is properly served. Before work starts. In other words, before the first furnishing of labor or materials by anyone on the job. It is the responsibility of the general contractor to serve the owner and receive back a signed copy. But if the original contractor does not do so, subcontractors and suppliers will know because they are supposed to receive a copy. If no copy is received, subcontractors and suppliers, in order to protect their lien rights, need to serve the owner and have signed such a notice. In the usual situation, the general contractor simply hands a copy to the owner who signs same. But there are cases in Page 2 of 11
which subs and suppliers can send it by mail if they have not received a copy from the general. But it needs to be signed and not just received by the owner. Only one such notice need be provided to the owner for each project. Only one of the coowners needs to receive and sign the copy. For example, if the contract is with the husband and wife, one such spouse can receive and sign on behalf of both. Form and Content: 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. To have this form prepared now online, see the list of forms at the end of this section. PRELIEN NOTICE This state requires a Notice be sent out before the mechanic=s lien is filed/recorded. For simplicity, this notice will be referred to as a APrelien Notice@. The basic information on this Notice is as follows: Name of Notice: On What Kinds of Projects?: Pre-Lien Notice. Under the new legislation signed by the governor on April 6, 2011 (SB 277), Code Section 142.6 has been amended to clarify what kinds of projects require service of the Notice. First, the Notice is not required for commercial or industrial projects. Secondly, it is only required for residential projects in which the owner at the time of the construction occupied the property as his or her residence. For example, even if it is residential property, the Notice would not be required if the owner was leasing it out or waiting for the property to be built as a spec or custom home. Who Must Use this Notice: All contractors, subcontractors, laborers, and material/equipment suppliers who do not have a direct contract with the owner or the owner=s agent, and who s lien claim is $10,000 or more (old law before 2011 was $2,500). For example, a general contractor with a direct verbal or Page 3 of 11
written contract with the owner who acts as the prime is not required to give the Notice. Note also the pre-lien notice is not required for unpaid retention amounts. So, if you have been paid everything under the contract except your 10% retention (for example), you can file a lien for this amount without previously serving the pre-lien Notice When: See Time Deadlines table. Serve it before you file the mechanic s lien but no later than 75 days after last furnishing your labor or materials. In 2010, the case of Izza Robert Jones Jr., DBA Professional Plumbing Services v. Purcell Investment (2010 OK Civ App 15) considered whether the Notice had to be served within 75 days of first furnishing or last furnishing the labor and materials. In considering the language of the Code Section 142.6 (B)(1), it held the latter applied, namely within 75 days of last furnishing any labor or materials by the subcontractor. This clarifies the law and gives extra time to serve. How to Serve: Form and Content: Verified or Notarized?: Serve the general contractor and the owner. Only one notice is required for each job. Although the statute simply says it must be sent (142.6 (B) (1)), instead of regular mail, it is recommended to be served by certified mail, return receipt requested. Make sure you keep a copy of the Pre-Lien Notice and a Proof of Service because you will have to file this along with your lien with the County Clerk s office. 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. To have this form prepared now online, see the list of forms at the end of this section. 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. The notice should be notarized but does not have to be verified. Page 4 of 11
Special Rule as to Lessors of Equipment: Under previous law, suppliers of leased or rented equipment were required to serve the owner with a Notice of Lien for Leased or Rented Equipment within 5 days after the equipment is first used on the property. In 2005, this was considered too cumbersome and this Notice was deleted from the statutes and is no longer required. Now, such suppliers simply follow the same rules as a subcontractor as to prelien notices. 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 operators of equipment, landscape contractors, surveyors, architects, engineers, and construction managers. For the supplier of materials, one must prove that the materials were actually used and incorporated into the improvement. However, there is a rebuttal presumption that if materials were delivered to the job site, they were incorporated. Lessors of equipment are entitled to a lien, but not against homestead property (property owned as a residence), property used for agricultural purposes, or property used for the production or growing of agricultural products. As to oil and gas projects, contractors as well as engineers and geologists can receive a lien. Laborers hired directly by the owner can also receive a lien, but only as to the specific features improved by the labor, and the lien lasts only as long as the improvement is owned by the owner who entered into the contract. Note that such laborous liens do not apply to the crew members of a general contractor or sub because such laborers are given preference in the lien statutes. Of course, the labor provided by a subcontractor s or contractor s crew is part of their lien, but it is not given priority. When to File/ Record: See Time Deadlines table. Persons who have a direct contract with the owner must file their mechanic s lien within four months after last furnishing labor, materials, or equipment to the site. Page 5 of 11
Subcontractors and material/equipment suppliers who do not have a direct contract with the owner must file their lien within 90 days of last performing labor and materials. Remember, the time deadline is 90 days and not 3 months. Mechanics liens for work on oil and gas wells are filed within 180 days after the last date of furnishing labor and materials. Laborers are not required to file a pre-lien notice of mechanic s lien. They need only file their lawsuit to collect against the owner within eight months of last performing their work. Where to File/Record: Office of the county clerk where the project is located. How to Serve: Once filed with the county, the clerk does the work for you and within one business day after filing, will send a copy of the mechanic s lien to the owner by certified mail. If you work on an oil or gas project, the lien, logically, can go against the property. But, it may also be against the proceeds of the sale of the oil or gas. To accomplish this, you must give a copy of the mechanic s lien to the purchaser of such oil and gas. Amount of Lien: Property Subject to the Lien: Primarily for unpaid labor, material, and equipment supplied. It is uncertain whether other consequential damages, such as delay damages, extended overhead, loss profits on other jobs, as well as other indirect damages may be included in the lien. It is doubtful they will be included, especially since almost all states forbid such inclusion. Of course, one could always sue for breach of contract for those damages against the party with whom you have entered into an agreement. The good news is that even if you do not have an attorney s fees provision, the other side will have to pay your attorney s fees if you are successful in foreclosing the lien in court, whether as a general, sub, or supplier. The bad news is that if you lose such a lien foreclosure action, the owner can assess attorney s fees against you. A mechanic=s lien applies only to private projects. No lien is allowed in public projects against government property. The lien will go against the entire parcel of property, including the buildings and improvements that are subject to the work, assuming the person who directs the construction is also the owner of the property. Page 6 of 11
Oklahoma law allows a homestead exemption upon owner-occupied residential property. In general terms, this prevents a forced sale of the property. However, there is a major exception for labor and materials conferred upon such property. Under the rationale that such work improves the value of the property, contractors and suppliers are entitled to and enforce through foreclosure their liens on residential property. But, remember, in order to do so, both the husband and wife must have signed the construction contract with the general. And, even more importantly, there is no foreclosure against residential property unless someone, whether general or sub, has supplied the owner with a Homeowner Notice, and this is signed by at least one of the owners. Oklahoma has very broad and liberal provisions allowing liens on oil and gas projects to be against: (1) the entire leasehold; (2) the oil and gas pipelines; (3) the real property itself; (4) the buildings improved; and (5) the proceeds from sale. Furnishing Information: Verified or Notarized?: This state has a special provision in the statutes to insure a sub or supplier has the needed information to prepare the Pre-Lien Notice. Such a sub or supplier may request in writing (a letter will do) of the general, by certified mail, to provide the name and address of the owner of the project. The general must furnish the info within 5 days of receipt. If not, there is no need to serve the Pre-Lien Notice. 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 lien in this state must be verified and notarized. Either the lien claimant or his or her attorney may sign. In the case of corporate lien claimants, it should be verified and notarized by an officer of the corporation. Priorities: Mechanics liens have priority over any other liens, including mortgages, judgments, or construction loans that are recorded after work begins on the project by any contractor or subcontractor. Once work commences, all mechanics lien claimants, regardless of when they work on the project, get equal priority. This is why, in most cases, Page 7 of 11
construction lenders have a representative inspect the site to make sure work has not begun so they have first priority on recording. The only exception is that a laborer has priority over a construction loan, or other liens, regardless of whether it was created before or after. In line with most states, it is probably safe to assume that the lien claimants will share on a pro rata basis if there is not enough proceeds to go around for everyone. Lien Release Bond: A lien can be released from the property by the owner, or any other interested person, depositing money or securing a lien discharge bond for 125% of the lien amount and filing same with the county clerk s office. You will know about this because within three days of receipt, the county clerk must give the lien claimants notice. You will then have ten days in which to file objections to the bond. However, note, that is very difficult, if not impossible, to object to a credible corporate surety company or the deposit of cash monies with the clerk. But, do not despair. You will proceed as before in court to prove your case, except you will name the bonding company and they will be liable for the lien, court costs, and attorney s fees if you later prevail. Miscellaneous Issues: Diversion: Oklahoma has stiff fiduciary requirements for generals and subs in holding monies for use on the construction project. The monies must be used solely for the payment of the labor and material owed to others on the project, obviously after one takes his or her allowed profit and overhead. The statutes require the maintenance of a trust fund, and although they do not specifically state a separate account is required, many attorneys interpret this as requiring such a separate account. Examples of unlawful diversion would be using the funds for other projects or taking more than your share before paying the lower tiered subs and suppliers with whom you have a contract. Special Statements Contained in the Mechanic s Lien: Make sure you use a standard form and well-recognized mechanic s lien format. If you are an equipment rental Page 8 of 11
company, you must also attach a Certificate of Service (showing that the owner has been served with the Notice of Lien for Leased or Rented Equipment) to the lien itself. In the case of owner-occupied residences, the lien claimant must attach a copy of the signed Homeowner s Notice. Owners Defenses: The owner is only obligated to pay the total amount under his or her contract with the general. Once this is done, there is no further obligation, and if the money has not filtered down to the lower tiered subcontractors and suppliers, they will not be able to file their liens. In other words, this prevents the owner from paying twice. LAWSUIT TO FORECLOSE LIEN Introduction: When: Where to File: Arbitration: 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 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. Within one year from the date the mechanic s lien was filed with the county clerk. District court of the county in which the property 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. Page 9 of 11
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. 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 Page 10 of 11
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. 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