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.