If there is a payment dispute with a construction lienor — could be a contractor, a subcontractor, or supplier – it is possible, and more than likely, a construction lien may get recorded against real property. This scenario is not uncommon as the lien is the mechanism for the lienor to collateralize their claimed nonpayment. Now, in reality, it does not take much money to record a lien. A lienor should utilize a lawyer to prepare their liens, but maybe they prepare liens in-house. Regardless, the recording of the lien is a nominal cost and the clerk that dockets and records the lien does NOT analyze the merits of the lien. That is not what the clerk is there to do; nor do you really want them the delve into the factual merits.
Well, what if a lien is facially invalid, meaning that the lien, on its face, includes information that demonstrates it is NOT properly perfected. Or what if the lienor failed to properly preserve or perfect its lien rights before recording the lien. This happens! Naturally, an owner of the real property wants the lien removed from the property. The owner does not want the encumbrance.
The owner could transfer the lien to a lien transfer bond under Florida’s Lien Law, but that is easier said than done. And this does not discharge the lien; it just removes the lien from the property to the security of the bond.
The owner could pay the lienor to record a satisfaction of lien but then the lienor wins by improperly leveraging its payment dispute with an invalid lien. (Frankly, sometimes this makes sense irrespective of the perceived “win.”)
The owner could record a notice of contest of lien under Florida’s Lien Law to shorten the lienor’s time period to foreclose on the lien from one year to sixty days. This is generally the approach I suggest because if the lienor does foreclose within the sixty days there is the strong chance the lienor was always going to foreclose on the lien so why not bring the dispute to the head sooner than later.
Then, there is a statutory procedure under Florida’s Lien Law (Florida Statute s. 713.21(4)) oftentimes referred to as the “order to show cause” complaint where the lienor is given 20 days to show cause why its lien should not be enforced or cancelled of record (which is done by timely foreclosing the lien within 20 days after service of the summons):
By an order of the circuit court of the county where the property is located, as provided in this subsection. Upon filing a complaint by any interested party the clerk shall issue a summons to the lienor to show cause within 20 days after service of the summons why his or her lien should not be enforced by action or vacated and canceled of record. Upon failure of the lienor to show cause why his or her lien should not be enforced or the lienor’s failure to commence such action before the return date of the summons the court shall order cancellation of the lien.
An owner may do this because the owner has its own claims against the lienor. Or the owner may want to force the lienor to “make a move” or else lose the lien if the lienor does not timely foreclose. Strategically, it is an approach owners do pursue in certain contexts.
Unfortunately, a recent case adds uncertainty to the strategic value of this approach, or at least how the order to show cause complaint is pled.
In Calixte v. Coastal Building Contractors, LLC, 2024 WL 1896114 (Fla. 4th DCA 2024), an owner filed an order to show cause complaint against a lienor under Florida Statute s. 713.21. The owner alleged the lienor was required to serve a notice to owner, and did not, and therefore its lien should be cancelled for being invalid. The lienor, which was required to file its lien foreclosure counterclaim within 20 days, did not. That should have been it. But it was not. The lienor argued that s. 713.21 does not apply because the owner alleged that the lien was not properly perfected when it alleged the lienor failed to serve its notice to owner. The lienor made this argument because s. 713.21 is prefaced, “A lien properly perfected under this chapter may be discharged, or released in whole or in part, by and of the following methods…[(4) through the order to show cause complaint].” In other words, because the owner alleged the lien was not properly perfected, the order to show cause complaint was not an option. Sadly, the appellate court agreed: “As the complaint in this case specifically alleged [the lienor] had failed to perfect its lien by serving a “notice to owner” and therefore had no lien rights, [owners] could not avail themselves of this special statutory procedure authorized by section 713.21.” Calixte, supra, at *2.
This ruling, quite frankly, is unjust and somewhat ridiculous. Here is why. The lienor is still foreclosing the lien. Thus, the lienor does not agree its lien is not properly perfected. The lienor believes it is properly perfected because it is still pursuing its lien foreclosure. Next, if you read s. 713.21, it talks about other procedures to discharge a lien including a satisfaction of lien, by a judgment, or by the lienor failing to timely foreclose the lien. These options are subject to the exact same prefatory language, “A lien properly perfected under this chapter may be discharged, or released…” If the show cause complaint is not an option because of this prefatory language, what about these other standard options? And lastly, this leaves the owner that disputes the merits of a lien with really only two options if it believes a lien is not properly perfected: (1) the notice of contest of lien (my preferred option), and (2) transferring a lien to a lien transfer bond, which does not discharge the lien but simply transfers the lien from the real property to the security of the bond. Meanwhile, the encumbrance created by the lien still exists simply because the owner implemented a statutory procedure on a lien the owner did not think was properly perfected, yet the lienor disagreed. And here is what the case does not discuss. What if the owner did not allege the lien was not properly perfected? But in reality it was not. In that context would the statutory procedure apply because if pursuing this option there is no value to allege the lien is not properly perfected in light of this ruling.
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.
