Category Archives: Lien

RESIDENTIAL INTERIOR DECORATOR WAS ENTITLED TO LIEN AND WAS NOT ENGAGING IN UNLICENSED CONTRACTING

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Residential construction disputes can sometimes take nasty turns.  This is not attributed to one specific reason, but a variety of factors.  Sometimes, there are not sophisticated contracts (or contracts at all).  Sometimes, relationships and roles get blurred.  Sometimes, parties try to skirt licensure requirements.  Sometimes, a party is just unreasonable as to their expectations.  And, sometimes, a party tries to leverage a construction lien to get what they want.  In all disputes, a party would certainly be best suited to work with construction counsel that has experience navigating construction disputes.

An example of a construction dispute that took a nasty turn involving an interior decorator is SG 2901, LLC v. Complimenti, Inc., 2021 WL 2672295 (Fla. 3d DCA 2021).  In this case, a condominium unit owner wanted to renovate his apartment. He hired an interior decorator to assist. As his renovation plans became more expansive, the interior decorator told him he would need to hire a licensed contractor and architect.  The interior decorator arranged a meeting with those professionals and, at that meeting, they were hired by the owner and told to deal directly with the interior decorator, almost in an owner’s representative capacity since the owner traveled a lot.  The interior decorator e-mailed the owner about status and requested certain authorizations, as one would expect an owner’s representative to do.  At the completion of the renovation job, the owner did not pay the interior decorator because he was unhappy with certain renovations. The interior decorator recorded a construction lien and sued the owner which included a lien foreclosure claim.  There was no discussion of the contracts in this case because, presumably, contracts were based on proposals, were bare-boned, or were oral.

The owner argued that the interior decorator should not be entitled to any monies because she was illegally acting as a general contractor, i.e., engaging in unlicensed contracting.  (The owner was arguing under Florida Statute s. 489.128 that states contracts entered into by unlicensed contractors are unenforceable as a matter of public policy.)   But there were problems with this argument, as found by the Court.  First, the evidence showed the owner did hire a general contractor who had met with the owner and was responsible for the work.  Second, the evidence showed that any person who performed a service in connection with the project was approved by and hired by the owner or the general contractor.  Third, the Court found the evidence showed the interior decorator’s scope was “specifically limited to providing design/decorating services and acting as the point of contact in a representative or agency capacity on [owner’s] behalf.” SG 2901, LLC, supra.  In other words, the evidence showed the interior decorator did not do anything wrong but acted like many interior decorators on renovation jobs by providing a service and assisting the owner with licensed professionals an owner would need to engage.

The owner also argued that the interior decorator was not entitled to a construction lien.  The trial Court disagreed because under Florida Statute s. 713.03(1), any person performing services as an interior designer are entitled to a lien for their services used in connection with improving the property or in supervising the work of improving the property.   The Court importantly noted that because the interior design services were for a residential property, an interior decorating license was NOT required.  See Florida Statute s. 481.229(6)(a) (discussing exemption for interior decorating for residential application).

The scenario discussed in this case is not an uncommon scenario on residential construction projects.  Had contracts been formalized or included certain sophistication, perhaps this dispute could have been avoided.  Possibly not. But importantly, despite the owner’s arguments to the contrary, the residential interior decorator did nothing improper.  She wasn’t required to obtain a license for residential interior decorating.  She was not acting as the general contractor.  And, she was entitled to a construction lien for unpaid services.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

MAKE SURE TO PROPERLY PERFECT AND PRESERVE CONSTRUCTION LIEN RIGHTS

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If you recording a construction lien (referred to as a claim of lien) and looking to perfect your construction lien foreclosure rights, it is imperative that you work with counsel to ensure your rights are properly preserved.  This is good practice!

A claim of lien must be served on an owner within 15 days after recording.   Florida Statute s. 713.08(4)(c) says: “The claim of lien shall be served on the owner. Failure to serve any claim of lien in the manner provided in s. 713.18 before recording or within 15 days after recording shall render the claim of lien voidable to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.”

Florida Statute s. 713.18, hyperlinked for your review, includes the statutory ways to serve “notices, claims of lien, affidavits, assignments, and other instruments permitted or required under [Florida Statutes Chapter 713].”

Furthermore, a contractor in privity with the owner must serve a Contractor’s Final Payment Affidavit per Florida Statute 713.06(3)(c) “at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien.”  The Contractor’s Final Payment Affidavit must also be served per s. 713.18.

The reason this is important is demonstrated in the Fourth District Court of Appeal’s opinion in Fettig’s Construction, Inc. v. Paradise Properties & Interiors LLC, 2020 WL 6479580 (Fla. 4th DCA 2020) that involved a petition for writ of certiorari to the appellate court after the trial court entered partial judgment in favor of an owner dismissing a claim of lien and lien foreclosure due to the contractor’s failure to property serve a claim of lien and Contractor’s Final Payment Affidavit on the owner.

Of importance, a trial court discharging a lien (or even lis pendens) will give rise to a basis for an appeal (petition for writ of certiorari) because it would permit an owner to immediately sell or transfer that asset—the real property— without the encumbrance of the lien which could NOT be remedied on a post-final judgment appeal.  See Fettig’s Construction, Inc. at *1.

Without getting into the nitty gritty of this case, the contractor served the lien on the owner per its addresses registered with the Secretary of State and property appraiser but not the address located in the notice of commencement.  The lien was returned undeliverable to the contractor.   The owner claimed that the contractor didn’t properly comply with the service requirements in s. 713.18.   While the trial court, somewhat surprisingly, bought this argument, the appellate court did not and reversed the judgment.   Moreover, the appellate court noted that even if the contractor did not properly serve the lien, s. 713.08 provides the lien would be voidable “to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.”  This, however, is a question of fact.

As to the Contractor’s Final Payment Affidavit, the contractor seemed to serve the Affidavit to the address in the notice of commencement, but it was returned undeliverable too.  The appellate court found this was acceptable if there was proof the non-delivery was not caused by the contractor, which would require an evidentiary to address “whether the failure of delivery was not the fault of Contractor.”  Fettig’s Construction, Inc., supra, at *4.

What does this all mean?  It means to follow the advice in the very first paragraph – work with counsel to ensure your rights regarding recording a construction lien, serving a construction lien, and preserving your rights to foreclose a construction lien are properly perfected and preserved.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

EQUITABLE LIEN DESIGNED TO PREVENT UNJUST ENRICHMENT

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There are instances where a party does not have construction lien rights but, nevertheless, feels the need to pursue an equitable lien against the real property.

No different than a construction lien, an action to enforce an equitable lien has a one-year limitations period if it arises from the “furnishing of labor, services, or material for the improvement of real property.”  Fla. Stat. s. 95.11(5)(b).  In other words, an equitable lien–not nearly as powerful as a construction lien because a construction lien is recorded in the official public records whereas an equitable lien is not–is tied to an analogous one-year limitations period for those liening for construction improvements.  (Notably, if the equitable lien arises outside of the construction improvement context, the one-year statute of limitations would not apply.  See Gabriji, LLC v. Hollywood East, LLC, 45 Fla. L. Weekly D2251a (Fla. 4th DCA 2020) (one-year statute of limitations period does not apply to all equitable liens such as those that do not arise from furnishing labor, services, or material for the improvement of real property)).

An equitable lien is designed to prevent unjust enrichment when there is no adequate remedy at law although it is a completely separate cause of action than a cause of action for unjust enrichment.  Gabriji, supra.   An equitable lien:

[I]s “ ‘a right granted by a court of equity, arising by reason of the conduct of the parties affected which would entitle one party as a matter of equity to proceed against’ certain property.”  “Such a lien ‘may be declared by a court of equity out of general considerations of right and justice as applied to the relations of the parties and the circumstances of their dealings.’ ” 

Gabriji, supra (internal citations omitted).

However, importantly, there is also law that supports that a claim for an equitable lien must be supported by “evidence of fraud, misrepresentation, or other affirmative deception.”  Wal-Mart Stores, Inc. v. Ewell Industries, Inc., 694 So.2d  756, 757 (Fla. 1st DCA 1997); Gordon v. Flamingo Holding Partnership, 624 So.2d 294, 297 (Fla. 3d DCA 1993).  Such evidence will likely be needed to support an equitable lien in a construction context which is pursued because a party did not properly perfect construction lien or payment bond rights.  An equitable lien may be an appropriate cause of action in certain instances as an argument to pursue recourse for non-payment where the cause of action is designed to foreclose a lien based on equity–not a statute or written instrument.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DON’T DO THIS WHEN IT COMES TO CONSTRUCTION LIENS

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When it comes to preparing and recording a construction lien, this case is an example of what NOT TO DO!   I mean it — this exemplifies what NOT TO DO!  It is also a case study of why a party should always work with counsel in preparing a construction lien so that you can avoid the outcome in this case–your lien being deemed fraudulent.

In Witters Contracting Company v. West, 2020 WL 4030845 (Fla. 2d DCA 2020), homeowners hired a contractor to renovate their home under a cost-plus arrangement where the contractor was entitled to a 10% fee on construction costs.  The contract also required extra work to be agreed in writing between the owner and contractor.

During construction a dispute arose.  The contractor texted the owner that it will cancel the permit and record a $100,000 construction lien if the owner did not pay it $30,000.   Shortly thereafter, the contractor’s counsel sent the homeowners a demand for $59,706 with back-up documentation.  Less than a week later, the contractor recorded a construction lien for $75,000.  The owners initiated a lawsuit against the contractor that included a claim for fraudulent lien.  The contractor then amended its construction lien for $87,239.

The trial court found that the contractor’s claim of lien was fraudulent because it was compiled “with such gross negligence as to the amount claims therein to constitute willful exaggerations.”   A trial was held on damages and $87,239 was awarded as punitive damages against the contractor, plus attorney’s fees and costs, all of which were permissible when a lien is deemed to be a fraudulent lien.

Think about it.  The contractor asked for $30,000 under the threat it will record a $100,000 lien.  It then sent a demand letter for $59,706.  Then it recorded a construction lien for $75,000.  Then it amended the construction lien to $87,239.  This was all in a very short time period.  And, this is likely why the lien was deemed to have been compiled with such gross negligence as the contractor, evidently, had no clue what he was owed under the cost-plus contract or, if he did, he went about it incorrectly.  It is possible the contractor was owed something, but the manner in which he went about it created the wrong perception.  It is unclear whether his counsel was involved in preparing the lien or why the lien was different from the amount in the demand letter sent by counsel.  Nevertheless, clearly, this is the perception you want to avoid and why working with counsel in preparing a lien is vital.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

VALUE IN RECORDING LIEN WITHIN EFFECTIVE NOTICE OF COMMENCEMENT

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Construction lien priority is no joke!   This is why a lienor wants to record its construction lien within an effective notice of commencement.  A lien recorded within an effective notice of commencement relates back in time from a priority standpoint to the date the notice of commencement was recorded.  A lienor that records a lien wants to ensure its lien is superior, and not inferior, to other encumbrances.  An inferior lien or encumbrance may not provide much value if there is not sufficient equity in the property. Plus, an inferior lien or encumbrance can be foreclosed.

An example of the importance of lien priority can be found in the recent decision of Edward Taylor Corp. v. Mortgage Electronic Registration Systems, Inc., 45 Fla.L.Weekly D1447b (Fla. 2d DCA 2020). In this case, a contractor recorded a notice of commencement for an owner.  While an owner is required to sign the notice of commencement that the contractor usually records, in this case, the owner did not sign the notice of commencement.  Shortly after, the owner’s lender recorded a mortgage and then had the owner sign a notice of commencement and this notice of commencement was also recorded.  When there is a construction lender, the lender always wants to make sure its mortgage is recorded first—before any notice of commencement—for purposes of priority and has the responsibility to ensure the notice of commencement is recorded.  Here, the lender apparently did not realize the contractor had already recorded a notice of commencement at the time it recorded its mortgage.

An unpaid subcontractor recorded a lien and foreclosed on the lien.  Because the lien related back in time to the original notice of commencement, the subcontractor moved to foreclose the mortgage as an inferior interest.  (Remember, the mortgage was recorded after the notice of commencement the contractor recorded that was not signed by the owner.)  The lender argued that the notice of commencement was a legal nullity because it was not signed by the owner, therefore, its mortgage had priority.  The trial court agreed with the lender.  The appellate court did not:

[W]e hold that a notice of commencement not signed by the owner, but instead signed by the general contractor with the owner’s authority, is not a nullity, per se, in a lien foreclosure action brought by a subcontractor where the subcontractor has strictly complied with chapter 713 and relies upon the defective notice of commencement, which is otherwise in substantial compliance with section 713.07. In other words, the lender may not use the deficient notice of commencement as a sword against a subcontractor who bears no duty to ensure the validity and accuracy of the notice of commencement.

Edwin Taylor Corp., supra.

This is a good result for a subcontractor that is now in a position to have a lien that is superior to a lender’s mortgage — a situation that rarely occurs and should not occur.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

FORECLOSING JUNIOR LIENHOLDERS AND RECORDING A LIS PENDENS

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When you foreclose on a construction lien, there are a couple of pointers to remember.

First, you want to make sure you include junior lienholders or interests you are looking to foreclose (or you want to be in a position to amend the foreclosure lawsuit to identify later).  The reason being is you want to foreclose their interests to the property. “[J]unior interest holders are a narrow class of mortgagees whose interest in the underlying property is recorded after the foreclosing contractor’s claim of lien is filed. This class is routinely joined to the construction lien enforcement action under section 713.26 to allow the construction lienor to foreclose out the junior lienholder’s interest in the property encumbered by the construction lien.” See Decks N Sunch Marine, infra.

Second, you want to record a lis pendens with the lien foreclosure lawsuit.  Failure to do so could be problematic because Florida Statute s. 713.22(1) provides in part, “A lien that has been continued beyond the 1-year period by the commencement of an action is not enforceable against creditors or subsequent purchasers for a valuable consideration and without notice, unless a notice of lis pendens is recorded.”

A recent case, Decks N Such Marine, Inc. v. Daake, 45 Fla.L.Weekly D1168b (Fla. 1st DCA 2020), discusses these pointers.  In this case, a contractor filed a construction lien foreclosure action in 2006 against residential real property. However, the contractor did not record a lis pendens until 2013.  The lis pendens, however, was recorded after the owner had a mortgage recorded on the property.  The contractor amended its construction lien foreclosure action to foreclose the mortgagee claiming the mortgagee was a junior lienholder.  The mortgagee moved for summary judgment pursuant to Florida Statute s. 713.22 arguing the lien was “not enforceable against creditors or subsequent purchasers for valuable consideration and without notice, unless a notice of lis pendens is recorded.”   In other words, the mortgagee was not a lienholder that could be foreclosed in light of the untimely recording of the lis pendens.  The mortgagee prevailed on this issue.

The mortgagee then sought its attorney’s fees against the contractor as the “prevailing party” under Florida Statute s. 713.29 (in Florida’s Lien Law).  The trial court agreed.  The appellate court did not.  The appellate court held that a junior lienholder is not entitled to attorney’s fees under Florida Statute s. 713.29 when prevailing in a construction lien enforcement action.  The contractor is not enforcing its lien against the junior lienholder but “joining it to the underlying action to ensue determination of superiority of liens or security interests upon a foreclosure sale.” Decks N Sunch Marine, supra.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: THE NOTICE OF CONTEST OF LIEN IS A POWERFUL TOOL

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If you receive a Notice of Contest of Lien, do NOT ignore it.  The Notice of Contest of Lien is a powerful tool that shortens the limitations period for a linear to foreclose on a construction lien to 60 days or else the lien is discharged by operation of law.   Conversely, if you receive a construction lien, consider recording a Notice of Contest of Lien based on its utility.

As an example of the usefulness of the Notice of Contest of Lien, in Rabil v. Seaside Builders, LLC, 226 So.3d 935 (Fla. 4th DCA 2017), a contractor filed a construction lien foreclosure lawsuit on a residential project.  The homeowners then transferred the lien to a lien transfer bond and recorded a Notice of Contest of Lien.  The contractor did not amend the lawsuit to sue the lien transfer bond surety within the 60-day window.  Consequently, the homeowners moved to dismiss the lien foreclosure lawsuit, release the lien transfer bond, and discharge the corresponding lis pendens.  The trial court denied the motion.  On appeal, the Fourth District reversed holding that “[b]ecause the contractor did not file suit against the surety within sixty days [in response to the Notice of Contest of Lien], the lien was automatically extinguished by operation of law, and the clerk was obligated to release the bond.” Rabil, 226 So.3d at 937.

This case exemplifies the utility of recording a Notice of Contest of Lien and how it benefitted the homeowner upon filing the Notice of Contest of Lien after recording the lien to a lien transfer bond post-initiation of the lawsuit.  The is exactly why a Notice of Contest of Lien should not be ignored.  If you receive one, the smart play is to immediately consult with counsel, just like the smart play if you receive a construction lien is to consult with counsel.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: MAKE SURE TO TIMELY PERFECT YOUR CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS!

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In today’s current climate, you do not want to wait until the last minute to record your construction lien or serve your notice of nonpayment to preserve your payment bond rights.  Operate conservatively and preserve these rights now, not later.   Whether preserving construction lien or payment bond rights, the key date is 90-days from your final furnishing date.  A construction lien must be recorded within 90 days from your final furnishing date.  Likewise, a notice of nonpayment (to preserve payment bond rights on a private project) needs to be served within 90 days from your final furnishing date.

It is important to remember that performing punchlist, warranty, and corrective work does NOT extend your final furnishing date. In other words, do not think you can record a lien or serve your notice of nonpayment within 90 days from completing punchlist or warranty work.  That would be a bad idea.  See, e.g., Delta Fire Sprinklers, Inc. v. Onebeacon Ins. Co., 937 So.2d 695 (Fla. 5th DCA 2006) (performing punchlist items insufficient for extending final furnishing date in order for subcontractor to timely serve its notice of nonpayment).

MAKE SURE TO TIMELY PERFECT YOUR CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CONSTRUCTION LIEN FORECLOSURE ACTION MUST BE BROUGHT IN COUNTY WHERE PROPERTY LOCATED

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A construction lien foreclosure action is an action against the real property and MUST be brought in the county where the property is located. It is an action concerning subject matter jurisdiction (the jurisdiction of the court to hear the matter) and, thus, can be raised at any time in a proceeding.  If you are looking to foreclose a construction lien, please make sure 1) the lien is recorded in the right jurisdiction and 2) the lien is foreclosed on in the right jurisdiction.

In a recent case, Prime Investors & Developers, LLC v. Meridien Companies, Inc., 2020 WL 355930 (4th DCA 2020), a dispute arose between a general contractor and subcontractor on a hotel project in Miami-Dade County. The general contractor filed suit against the subcontractor for untimely and defective installation in Broward County. The subcontractor counter-sued the general contractor for breach of contract and asserted a claim against the developer of the hotel to foreclose a construction lien. Remember, the property was located in Miami-Dade County but the lawsuit was in Broward County.

The trial court granted summary judgment in favor of the subcontractor and against the developer and contractor. The trial court entered a money judgment against the contractor and the developer, but did not initiate any foreclosure proceedings.

The appellate court reversed the summary judgment because there were genuine issues of material fact. The subcontractor, in its motion for summary judgment, did not address the general contractor’s affirmative defenses. (“When a party raises affirmative defenses, a summary judgment should not be granted where there are issues of fact raised by the affirmative defenses which have not been effectively factually challenged and refuted. The movant must disprove the affirmative defenses or show they are legally insufficient.”). Prime Investors & Developers, LLC, 2020 WL at *4 (citation omitted).

The appellate court did address the construction lien foreclosure issue by reminding “that “[a] lien against property is in rem, affecting title to the property, and must be brought in the circuit with jurisdiction over the property.” Prime Investors & Developers, LLC, 2020 WL at *4 (citation omitted).  In other words, the subcontractor filed the construction lien foreclosure lawsuit in the WRONG jurisdiction. Oops!

However, the appellate court did not seem to challenge the right of the subcontractor to obtain a monetary judgment, absent the foreclosure proceedings, against the developer. While the subcontractor cannot foreclose its construction lien, it may have a basis to obtain a monetary judgment that excludes foreclosure against the developer if it prevails at trial. This is certainly not the same leverage the subcontractor wanted when it recorded the lien and initiated a construction-lien foreclosure.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CIRCUMSTANCES IN WHICH DESIGN PROFESSIONAL HAS CONSTRUCTION LIEN RIGHTS

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If you are a design professional (architect, landscape architect, interior designer, engineer, surveyor, or mapper) you have construction lien rights in the event you are not paid.   This does not mean your lien rights are absolute so it is important to understand the circumstances which allow you to record a construction lien on a project.  These circumstances are contained in Florida Statute s. 713.03:

(1) Any person who performs services as architect, landscape architect, interior designer, engineer, or surveyor and mapper, subject to compliance with and the limitations imposed by this part, has a lien on the real property improved for any money that is owing to him or her for his or her services used in connection with improving the real property or for his or her services in supervising any portion of the work of improving the real property, rendered in accordance with his or her contract and with the direct contract.

(2) Any architect, landscape architect, interior designer, engineer, or surveyor and mapper who has a direct contract and who in the practice of his or her profession shall perform services, by himself or herself or others, in connection with a specific parcel of real property and subject to said compliances and limitations, shall have a lien upon such real property for the money owing to him or her for his or her professional services, regardless of whether such real property is actually improved.

The first circumstance pertains to design professionals that do NOT have a direct contract with the owner of the property.  In this circumstance, you have lien rights for your services “used in connection with improving the real property” or your services “in supervising any portion of the work of improving the real property” that you perform under your contract and with the direct contract, presumably between the owner and your client.  The important, operative word in this circumstance involves improving the real property.

The second circumstance pertains to design professionals hired directly by the owner.  In this circumstance, you have broader lien rights as you have lien rights for your services “regardless of whether such real property is actually improved.”  Hence, improving the real property is of no moment.

A design professional does not need to serve any preliminary notice (such as a notice to owner) in order to preserve their lien rights.  However, a design professional still needs to record a construction lien within 90 days from their final furnishing date.

A construction lien from a design professional is less common than a lien from a contractor, subcontractor, or supplier. Nonetheless, design professionals do have construction lien rights that an owner should be cognizant of and a design professional should understand in furtherance of best ensuring payment.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.