Mechanic’s Liens Provide Great Leverage For Creditors

By Howard Goldman

mechanics

Mechanic’s liens are a powerful, effective, and efficient tool for creditors.  Unlike mortgages and other real estate encumbrances, mechanic’s liens are involuntary.  This means that a mechanic’s lien does not require court approval before it is perfected.  Accordingly, creditors can put a cloud on the title of real estate where their work, material, or services were provided, without having to first navigate expensive and time-consuming court processes.

Using the Massachusetts mechanic’s lien Statute, M.G.L. c. 254 (“Statute”), contractors, laborers, and suppliers can recover the cost of improvements made to real estate through a foreclosure sale of the subject real estate.  This foreclosure power provides great leverage for the creditor, and in turn provides compelling incentive for debtors to pay their outstanding bills.

However, strict compliance with the procedural rules for the creation, and ongoing enforcement, of a mechanic’s lien is mandated by both the Statute and the courts.

Strict Compliance Required: Traps for the Unwary

Two recent Massachusetts cases underscore the need for strict and timely compliance with the Statute, and demonstrate the judiciary’s unforgiving interpretations of the Statute.

In one case, the contractor was in the process of perfecting a lien and had done everything correctly.  The only remaining step was to file a lawsuit within the timeframe required by the Statute.  At that point, however, the debtor stalled the process by making promises and representations that the contractor would soon be paid in full.

Based on the debtor’s promises, the contractor delayed filing a complaint and the statutory deadline passed.  The contractor argued that the only reason the deadline was missed was the debtor’s assurances of payment.  However, the Massachusetts Appeals Court held that, regardless of the owner’s false promises, the contractor’s lien was invalid because it had not been timely enforced.  See D5 Iron Work v. Danvers Fish & Game Club, 2018 Mass. App. Unpub LEXIS 60 (January 22, 2018).

In the second case, the contractor recorded a Notice of Contract referencing an earlier, unsigned version of the contract.   Although the final, signed, contract was largely similar, the total contract price was slightly different than the amount listed on the Notice of Contract.  As a result, the Middlesex Superior Court held that because the signed contract differed from the one referenced in the lien documents, the lien was invalid.  See Atlas Contracting, Inc. v. Saleh, et al. (Lawyer Weekly No. 12-022-18) (Middlesex Superior Court, Civil Action No. 1781CV3436) (June 11, 2018).

As you can see, a mechanic’s lien is an effective legal tool, but obtaining and perfecting one requires close attention to the required timelines and strict compliance with the Statute, regardless of any extenuating circumstances.

Who Can Obtain a Mechanic’s Lien?

A broad array of creditors can obtain a mechanic’s lien in Massachusetts.  The Statute provides separate sections for contractors, subcontractors, and design professionals.  You are eligible to obtain a mechanic’s lien if you fall into one of those categories and are in some sense involved in the erection, alteration, repair or removal of a building, structure or other improvement to real property.  This includes “parties furnishing material or rental equipment, appliances or equipment” and “parties providing construction management and general contractor services.”

As such, the Statute is very broad in scope.  You are not required to do any building to qualify for a lien.  Any person qualifies who provides an “improvement to real property,” such as landscapers, driveway installers, fence installers, utility contractors, architects, designers, and assorted other real estate service providers.   However, the exact bounds of when work constitutes an improvement to real property remain open to interpretation, and the courts continue to examine and redefine these limits.  See, e.g., Mammoet USA, Inc. v. Energy Nuclear Generation Co., 16 Mass.L.Rep. 133; 2003 Mass. Super Lexis 1119 (2003) (finding that the transportation of a transformer from Connecticut to a nuclear power station in Massachusetts and setting it on a storage pad was not an improvement to real property and therefore the mechanic’s lien was dissolved).

What if my Contract is With a Tenant?

Another important aspect of the Statute is that it explicitly provides that the written contract (required to establish a lien) can be made with the actual owner of the property or “with the consent of such owner.”  This is very important.  Contractors whose written contract is with a tenant are provided an additional avenue for securing a debt, if it can be shown that the landlord consented to the tenant’s making of improvements to his or her property.  See Trace Construction, Inc. v. Dana Barros Sports Complex, LLC, 459 Mass. 346, 351 (2011).

Therefore, contractors who have contracted directly with a tenant may lien the landlord’s ownership interest, as opposed to the less valuable leasehold interest of the tenant, if such a showing of consent is made.   Unfortunately for subcontractors, this only applies to general contractors (who have a direct contract with the tenant).  Subcontractors may only lien the tenant’s leasehold interest in this circumstance.

In light of this possibility, landlords should be careful with granting consent and consider revising their leases to preclude their tenants from making alterations and improvements altogether, or particularly from hiring anyone to make improvements.  If construction by a tenant is anticipated or is specifically contemplated by the lease, landlords may protect themselves by requiring their tenants obtain bonds sufficient to cover any contract price prior to any contractor being engaged.

A Written Contract or a Series of Writings is Required

In order to be eligible to obtain a mechanic’s lien under the Statute, the party seeking the lien must have a written contract.  Without it, a mechanic’s lien is unenforceable.  Noreastco Door & Millwork, Inc. v. Vajradhatu of Massachusetts, Inc., 1999 Mass. App. Ct. 239, 240 (1999).  The Statute defines a “written contract” as “any written contract enforceable under the laws of the Commonwealth”, including any writing enforceable under the Statute of Frauds.

In other words, even without a formal written contract, a memorandum memorializing an oral agreement will qualify if it contains the following three elements: (1) the writing must indicate the existence of a contract, (2) it must be signed by the party to be charged, and (3) it must indicate the quantity of goods involved.  M.G.L. c. 106, § 2-201.  See Waltham Truck Equipment Corp. v. Massachusetts Equipment Co., 7 Mass. App. Ct. 580, 582 (1979) (holding that three writings in evidence signed by an authorized agent, when read together, satisfied the Statute of Frauds).  The writings, or series of writings taken together, must contain the essential terms of a contract, such as price, quantity, and type of materials and services.  See Harris v. Moynihan Lumber of Beverly, Inc., 1999 Mass. App. Div. 113, 115 (1999) (finding that a series of detailed documents, taken together, constituted a contract for the purpose of the Statute).

Therefore, even if you don’t have a formal written contract, you may be entitled to obtain a lien if you have signed writing(s) that contain the essential terms.

Perfection of Mechanic’s Liens

The power of the mechanic’s lien is that it can create a cloud on the title of real estate for which one’s work, material, or services were provided, without court approval.  Because of this, however, courts require that the Statute’s procedures be followed to the letter.  In order to preserve the status of the mechanic’s lien and avoid its dissolution, several steps must be taken.

First, the person claiming the lien must record a Notice of Contract signed under the penalties of perjury giving an account of the amounts due to him or her.  The notice of contract must be recorded not later than the earliest of:

  • 60 days after filing or recording a notice of completion;
  • 90 days after filing or recording of a notice of termination;
  • 90 days after the contractor, subcontractor, or supplier last performed labor or provided materials.

See Statute at §§ 2 and 4.

In addition to filing the notice of contract, one must serve the Notice of Contract upon the owner of the property, as well as the debtor, if a different entity, to perfect a mechanic’s lien.  See Ouellet v. Armstrong, 18 Mass L. Rep, 100 (2004) (finding that failure to provide actual notice of the recording of the notice of contract is fatal to a mechanic’s lien claim).

Additionally, the Statute requires that a contractor’s, subcontractor’s or supplier’s lien will be dissolved unless the party claiming the lien records a sworn Statement of Account not later than the earliest of:

  • 90 days after filing or recording a notice of completion;
  • 120 days after filing or recording of a notice of termination;
  • 120 days after the contractor, subcontractor, or supplier last performed labor or provided materials.

See Statute at § 8.

Finally, after the statement of account is recorded, the lienor must file a civil action in the county where the land lies within 90 days of filing the Statement of Account and record the complaint in the registry of deeds.  This must be filed in the judicial district in which the land is located.  See M.G.L. c. 254 §§ 5 and 11.

How are Mechanic’s Liens Discharged?

We receive numerous calls from property owners about the process of removing a defective lien.  The Statute, at Section 15A, states that a complaint must be filed in court in order to seek the discharge of a lien.  The Statute provides that such a complaint to dissolve a lien may be filed in the following circumstances:

  • any person providing labor, or materials, or funding for labor or materials refuses to continue to providing the same because of the lien;
  • there are issues with “the character of, or the contract for,” the work for which a lien is claimed;
  • there are problems with formalities of the notice of contract;
  • a party’s rights are foreclosed by a judgment or release;
  • any party wrongfully refuses to execute a notice of completion or improperly files or records a notice of termination.

While the law allows for a party seeking to discharge a lien to submit “written proof of the facts upon which the application is made,” Massachusetts courts have also noted that “summary discharge of the lien can only be obtained for defects that will customarily appear of record or be readily ascertainable by reference to undisputed documents. . ..” Golden v. General Builders Supply, LLC, 441 Mass. 652, 656 (2004).

Voluntary Dissolution of a Mechanic’s Lien

The contractor who places a mechanic’s lien on real estate may also dissolve it voluntarily by filing a notice of dissolution at the registry of deeds, in accordance with section 10 of the Statute.  It should be noted, however, that the filing of a notice of dissolution does not prevent the lienor from recording another Notice of Contract and Statement of Account with regard to work covered in the same contract at a later point.  See Tremont Tower Condo, LLC v. George B.H. Macomber Co., 436 Mass. 667 (2002).

Dissolution of Lien by Bond

A property owner may avoid and dissolve a mechanic’s lien by posting a bond.  There are two types of lien bonds provided for under the Statute.  The first type of bond is known as a “blanket bond” pursuant to section 12 of the Statute, which provides that any person may record a bond in the form provided by the Statute, and after recording the bond, “no lien under this chapter shall thereafter attach in favor of any person entitled to the benefit of such bond and not names as a principal thereof for labor or for labor and materials performed under the contract in respect to which such bond is given.”  A blanket bond may be recorded at the registry of deeds before the start of work.

The second type of bond is a so-called “target bond” pursuant to section 14 of the Statute.  With a target bond, a property owner may dissolve the lien by obtaining a surety bond “in a penal sum equal to the amount of the lien sought to be dissolved conditioned for the payment of any such sum which the claimant may recover on his claim for labor or labor and materials.”  To be effective, after recording, a notice of recording and a copy of the bond must be served upon the claimant.  Upon receiving actual notice service of the notice of recording and a copy of the bond, the claimant has 90 days to file suit against the surety, otherwise its lien is dissolved.

Execution of Lien Waivers

A contract requiring a general contractor or subcontractor not to file a mechanic’s lien is unenforceable, pursuant to section 32 of the Statute.   On the other hand, a contractor or general contractor may release a portion of its lien in exchange for payment.  The Statute provides a form for general contractors to use for such a partial release.  No statutory form exists for subcontractors, but they can still execute partial lien waivers which the courts have enforced.  See Buchanan Electric, Inc. v. Tocci Building Corp., 2000 Mass.Super Lexis 291 (2000).

The statutory lien waiver form under M.G.L. c. 254 § 32 waives all rights through the date of payment except for retainage, unpaid agreed or pending change orders and disputed claims, and subordinates the general contractor’s lien rights to the lender, to the extent of money actually advanced as of the date of execution of the lien waiver.

Conclusion

The Massachusetts mechanic’s lien is a creature of statute, and the precise meanings of the Statute’s terms continue to evolve through judicial interpretation.   The Statute provides a powerful tool for contractors seeking payment for their work improving real estate.  However, Massachusetts courts require strict compliance with the Statute.  Creditors seeking to protect their rights with mechanic’s lien should consult with an attorney to make sure that every step along the way is handled correctly.

 

About the Author

Attorney Howard S. Goldman is the founding partner of the law firm of Goldman & Pease LLC, 160 Gould Street, Needham, Massachusetts 02494 (781) 292-1080.  Mr. Goldman concentrates his practice in the areas of real estate, finance, and civil litigation, where he represents property managers, lending institutions, developers, and contractors for more than thirty-five years.  He has extensive experience establishing and dissolving mechanic’s liens and is an active member of the Massachusetts, Norfolk County, and Rhode Island Bar Associations in his field and is also an active member of CAI and IREM, where he frequently lectures and writes columns affecting the real estate and finance industries.  Mr. Goldman serves as a member of the Zoning Board of Appeals for the Town of Needham and as a court appointed mediator at the Boston Municipal Court and as a pro bono advocate at Federal District Court mediations.

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