You are an owner and a construction lien is recorded on your property. Or, you are a general contractor required to indemnify the owner for construction liens and a subcontractor you are in a dispute with records a construction lien (or one of the subcontractor’s suppliers or subcontractors records a lien). What are your options (other than paying the lienor in consideration of a satisfaction of lien) to extinguish the lien or transfer that lien to another form of security other than the real property?
(1) Notice of Contest of Lien – This is an efficient, cost effective strategy that I oftentimes prefer to use to truly determine whether a lienor (entity that recorded lien) actually intends on foreclosing on the lien. Recording a Notice of Contest of Lien pursuant to Florida Statute s. 713.22 shortens the statute of limitations to foreclose on the lien to 60 days after service of the Notice; if the lienor neglects to do so, the lien is extinguished. (A construction lien is otherwise good for one year from its recording.) Section 713.22 provides that an owner or an owner’s attorney can record a Notice of Contest of Lien in the official records (same official records where the lien is recorded). The Notice is a statutory form (see form below). Once it is recorded, the clerk serves it on the lienor at the address in the lien putting the lienor on notice that it must foreclose within 60 days. Notably, because the statute says an owner or owner’s attorney should record this, if representing the general contractor, I typically suggest that the general contractor get the owner to sign the Notice (or, get the owner’s permission that it is acceptable for the general contractor to sign as a representative for purposes of the Notice).
(2) Filing a Lawsuit to Show Cause – Another approach to shorten a lienor’s statute of limitation to foreclose on the lien is to file a complaint pursuant to Florida Statute s. 713.21 where the clerk issues a special summons “to the lienor to show cause within 20 days why his or her lien should not be enforced by action or vacated and canceled of record.” Fla. Stat. s. 713.21. Any interested party can file this lawsuit and the lawsuit is typically accompanied with a fraudulent lien claim against the lienor. When a lienor receives this lawsuit, it MUST foreclose on its lien within 20 days from service or else its lien should be discharged by the court. However, this requires drafting of the lawsuit and the special show cause summons, filing the lawsuit, and serving the lawsuit, so it certainly is not as cost effective as the first option. Also, sometimes, by the time the lawsuit is drafted, filed, and served, the 20 day show cause period would be pretty close to the expiration of the 60 days if the Notice of Contest of Lien was recorded. Every situation is different and there are circumstances where filing this lawsuit is a more attractive option than recording the Notice of Contest of Lien.
(3) Transferring the Lien to Alternative Security such as a Lien Transfer Bond – Sometimes, an owner needs the lien off of its property immediately and wants the lien transferred from the real property to alternative security such as a lien transfer bond. This is done pursuant to Florida Statute s. 713.24 where cash or a surety bond is posted with the court “in an amount equal to the amount demanded in such claim of lien, plus interest thereon at the legal rate for 3 years, plus $1,000 or 25 percent of the amount demanded in the claim of lien, whichever is greater, to apply on any attorney’s fees and court costs that may be taxed in any proceeding to enforce said lien.” Fla.Stat. s. 713.24. Typically, no one wants to post and tie up cash in the amount of the lien, plus 3 years of interest, plus another 25% of that lien amount to cover potential fees/costs. And, obtaining a surety bond is not always easy without posting collateral or cash to the surety, etc., so that the surety’s risk in posting the bond in the event the lienor prevails is mitigated. Now, a lien can be transferred to a lien transfer bond at any time including during the pendency of a lawsuit. For example, let’s say you elect option (1) or (2) above and the lienor does timely foreclose on the lien; the option of transferring the lien is still available. The major difference is that if a lien foreclosure lawsuit is underway and the lien transferred to a bond (or cash), the lienor has one year from the date of the transfer to amend its lawsuit to assert a claim against the bond. If the lien is transferred before the lien foreclosure lawsuit, then the one year to foreclose on the lien from the date the lien is recorded still applies.
An attorney should be consulted to assist you to determine the best option and strategy for you if a lien is recorded based on your circumstances.
NOTICE OF CONTEST OF LIEN
To: (Name and address of lienor)
You are notified that the undersigned contests the claim of lien filed by you on ___, (year) , and recorded in ___ Book ___, Page ___, of the public records of ___ County, Florida, and that the time within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice. This ___ day of ___, (year) .
Signed: (Owner or Attorney)
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.