DON’T IGNORE A NOTICE OF CONTEST OF LIEN

Posted on April 14, 2024April 14, 2024 by David Adelstein

A recent case, Jon M. Hall Company, LLC v. Canoe Creek Investments, LLC, 49 Fla.L.Weekly D812a (Fla. 2d DCA 2024), demonstrates four important things when it comes to liens:

An owner can shorten the time period to foreclose on the lien, whether against the real property or a lien transfer bond, to 60 days by recording a notice of contest of lien;
An owner can transfer a lien to a lien transfer bond during litigation;
An owner can record a notice of contest of lien to force the lienor to amend its lawsuit to sue the lien transfer bond surety within 60 days; and
A contractors’ failure to amend its lawsuit to sue the lien transfer bond within 60 days will extinguish its rights to pursue a claim against the lien transfer bond, and will otherwise extinguish the lien, fairly or unfairly.

Here are the key facts in Jon M. Hall Company:

4/14/22 – Contractor recorded claim of lien for $825,639.46
5/17/22 – Owner transferred Contractor’s claim of lien to a lien transfer bond
5/20/22 – Owner recorded a notice of contest of Contractor’s claim of lien
Late May 2022 – Contractor recorded amended claim of lien for $1,837,516.76
6/14/22 – Contractor filed lawsuit against Owner including a lien foreclosure as to its amended claim of lien. Contractor did not sure the lien transfer bond surety
7/1/22 – Owner transferred Contractor’s amended claim of lien to a lien transfer bond
7/1/22 – Owner recorded a notice of contest of Contractor’s amended claim of lien
Contractor did not amend its lien foreclosure lawsuit to sue the lien transfer bond within 60 days
12/19/22 – Owner moved for partial summary judgment on Contractor’s lien foreclosure lawsuit. “[Owner] asserted that transferring to bond and recorded notices of contest as to both [Contractor’s] Original Claim of Lien and Amended Claim of Lien had shortened the time for [Contractor] to bring action against the bond. [Contractor] had failed to timely do so, thereby resulting in automatic extinguishment of the lien as a matter of law.”
Trial court granted Owner’s motion for partial summary judgment holding that “[Owner’s] transfer and recording of the notice of context as to the Amended Claim of Lien during the litigation shortened the time for [Contractor] to bring a claim against the bond to sixty days, and [Contractor’s] failure to timely do so extinguished its lien automatically as a matter of law.”

The Contractor moved for a petition for a writ of certiorari to quash the trial court’s order that held its lien was extinguished as a matter of law.

A lienor has one year under Florida Statute Section 713.22 to foreclose on a claim of lien. This time period may be shortened to 60 days by an owner recording a notice of context of lien under Florida Statute Section 713.24. The notice of contest statute provides, “[t]he lien of any lienor upon whom such notice is served and who fails to institute a suit to enforce his or her lien within 60 days after service of such notice shall be extinguished automatically.”

Separately, under Florida Statute 713.24, a lien against real property can be transferred to the security of a lien transfer bond which removes the collateral of the lien from the real property to the lien transfer bond.

Construing Florida Statutes 713.22 and 713.24 together, “under the plain statutory language, where a lien is transferred to a bond during litigation, and the owner records a notice of contest, the lienor has “60 days” “within which to commence an action to enforce any claim of lien or claim against a bond,” or else the “lien . . . shall be extinguished automatically.” Jon M. Hall Company, supra (internal citations omitted).

Here, it is true that [Contractor’s] Original Claim of Lien was recorded, transferred, and noticed for contest before the litigation commenced. However, before the June 2022 lawsuit, [Contractor] also recorded an Amended Claim of Lien, more than doubling the amount claimed. [Contractor] thereafter filed its complaint, expressly acknowledging and seeking to recover on the higher Amended Claim of Lien. Two weeks later, [Owner] transferred the Amended Claim of Lien to the bond and recorded its notice of contest thereof, just as it had with the original one.

Thus, after [Contractor] commenced litigation on its Amended Claim of Lien, [Owner’s] actions in transferring the Amended Claim of Lien to bond under section 713.24 and then recording its notice of contest of the Amended Claim of Lien under section 713.22(2) operated to shorten the time period for [Contractor] to bring an action against the surety on the bond to sixty days.

***

On that question, the statutory language is quite clear: after [Contractor] “commenced” this “proceeding to enforce a lien” expressly seeking to recover on its Amended Claim of Lien, “during such proceeding, the lien [wa]s transferred” by Owner. When [Owner], as the owner of the property, recorded its notice of contest of the transferred Amended Claim of Lien, that “shorten[ed] the time . . . within which to commence an action to enforce any claim of lien or claim against a bond or other security.” Contractors failure to seek to claim against the bond within sixty days thereafter caused its lien to “be extinguished automatically” by operation of law.

***

[Contractor] also asserts that both of [Owner’s] notices of contest of lien were invalid because they were recorded after [Owner] had already transferred the claims of lien to bond. But [Contractor] has not cited, nor have we found, any support for this claim. Indeed, the only case Hall cites for this proposition involved the same order of events, without suggesting there was anything improper about it.

Jon M. Hall Company, supra (internal citations omitted).

Look, when it comes to claims of lien, do yourself a favor. Use a construction lawyer. Use a lawyer that understands liens, and importantly, Florida’s Lien Law. I cannot emphasize these points enough. If you don’t, you can get caught with gotcha tactics or crazy nuances under Florida’s Lien Law. I don’t necessary agree with the holding in this case. Regardless, when receiving a notice of contest of lien, you need to respect the implications and make sure rights are immediately preserved. Otherwise, you get caught in the scenario here where a lienor had a $1.8 Million lien extinguished. OUCH!!!

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.

FILING MOTION TO INCREASE LIEN TRANSFER BOND (BEFORE TRIAL COURT LOSES JURISDICTION OVER FINAL JUDGMENT)

Posted on May 7, 2023May 7, 2023 by David Adelstein

If a construction lien is recorded against real property, the lien can be transferred to a lien transfer bond. This transfers the security or collateral of the construction lien from the real property to the lien transfer bond. The lien transfer bond can be a bond posted by a surety company or it can be cash. This is governed by Florida Statute s. 713.24. The amount of the lien does not dictate the amount of the lien transfer bond. Rather, the lien transfer bond needs to be in the amount of the lien, plus interest on that amount for three years, plus $1,000 or 25% of the amount of the lien (whichever is greater so factor in the 25%) to cover attorney’s fees. Fla. Stat. 713.24(1).

If you are looking to transfer a construction lien to a lien transfer bond, make sure to consult with counsel.

Keep in mind there is a statutory mechanism for a lienor to increase the lien transfer bond to cover attorney’s fees and costs and notice the word “must” in the statute below. Pursuant to Florida Statute s. 713.24(3):

Any party having an interest in such security or the property from which the lien was transferred may at any time, and any number of times, file a complaint in chancery in the circuit court of the county where such security is deposited, or file a motion in a pending action to enforce a lien, for an order to require additional security, reduction of security, change or substitution of sureties, payment of discharge thereof, or any other matter affecting said security. If the court finds that the amount of the deposit or bond in excess of the amount claimed in the claim of lien is insufficient to pay the lienor’s attorney’s fees and court costs incurred in the action to enforce the lien, the court must increase the amount of the cash deposit or lien transfer bond. Nothing in this section shall be construed to vest exclusive jurisdiction in the circuit courts over transfer bond claims for nonpayment of an amount within the monetary jurisdiction of the county courts.

In a recent case, Edmondson v. Tri-County Electrical Services, Inc., 2023 WL 2995420 (Fla. 4^th DCA 2023), a lien was transferred to a cash bond by the real property owner. The contractor-lienor moved to have the court increase the amount of the cash security to better cover attorney’s fees and costs accrued in the litigation. The court deferred ruling on the motion. Subsequently, the court had a bench trial and the contractor prevailed. The court entered final judgment in favor of the contractor and reserved ruling on attorney’s fees, interest, and court costs. The court thereafter entered an amended final judgment that included attorney’s fees, interest, and court costs. The court then conducted a hearing to increase the cash bond and granted the contractor’s motion for the cash bond to be increased. The issue was that the court no longer had jurisdiction to require the owner to increase the cash bond:

The action here was not ‘pending’ under section 713.24(3). The general rule is that an action remains pending in the trial court until after a final judgment and such time as an appeal is taken or time for an appeal expires. By the time the trial court had ruled on the motion to increase the bond, the time for an appeal had passed. Therefore, because the matter was no longer pending, the trial court lacked authority to consider the motion.

The trial court was without jurisdiction to grant Contractor’s motion to increase the bond.

Edmondson, supra, at *2 (internal citations omitted).

Here, the contractor should have requested the trial court rule on the deferred motion to increase the cash bond BEFORE the amended final judgment was entered. Or, at a minimum, the contractor should have timely filed a motion for rehearing as to the amended final judgment to address this deferred motion to increase the cash bond. Once the rehearing period expired, “the trial court no longer has jurisdiction over a final judgment.” Edmondson, supra, at *1 (“Contractor did not file a timely motion for rehearing, which would have been the time to raise the bond increase issue.”). Id.

QUICK NOTE: REMEMBER TO TIMELY FORECLOSE LIEN AGAINST LIEN TRANSFER BOND

Posted on May 19, 2019April 24, 2020 by Edward Garber

When a construction lien is transferred to a lien transfer bond pursuant to Florida Statute s. 713.24, instead of foreclosing the lien against the real property, you are foreclosing the lien against the lien transfer bond. This is not a bad deal and, oftentimes, is probably ideal. Remember, however, just because a construction lien was transferred to a lien transfer bond (pre-lawsuit) does not mean you get more time to file your lien foreclosure lawsuit. A lawsuit must still be filed within one year (short of that period being specifically shortened under operation of the law). The only exception is that if the lawsuit is filed and the lien transfer bond is then recorded (post-lawsuit), the lienor has one year to amend its lawsuit to sue the lien transfer bond.