Tag Archives: lien transfer bond

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

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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. 4th 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.

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.

HUH? ACTION ON CONSTRUCTION LIEN “RELATES BACK” DESPITE NOTICE OF CONTEST OF LIEN

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Not every case law you read makes sense. This sentiment goes to the uncertainty and grey area of certain legal issues.  It is, what you call, “the nature of the beast.”  You will read cases that make you say “HUH?!?” This is why you want to work with construction counsel to discuss procedures and pros / cons relative to construction liens.

An example of a case that makes you say “HUH” can be found in Woolems, Inc. v. Catalina Capstone Creations, Inc., 2023 WL 2777506 (Fla. 3d DCA 2023) dealing with a construction lien foreclosure dispute.

Here, a contractor filed a lawsuit against a subcontractor with a summons to show cause why the subcontractor’s construction lien should not be discharged.  This is a specific complaint filed under Florida Statute s. 713.21(4). This statute requires the lienor to essentially foreclose on its construction lien within 20 days after it was served with a “show cause” summons.  The subcontractor filed its answer and counterclaim but did NOT assert a claim to foreclose its construction lien.

Around the time of subcontractor’s answer and counterclaim, the contractor transferred the subcontractor’s lien to an all-cash lien transfer bond in accordance with Florida Statute s. 713.24. Once the lien transfer bond was recorded, the owner recorded a notice of contest of lien under Florida Statute s. 713.22. The notice of contest of lien shortens the limitations period to foreclose on a lien to 60 days.

The subcontractor did NOT timely foreclose its lien against the lien transfer bond and the general contractor moved to have its all-cash lien transfer bond returned, as it should do. The subcontractor filed its lien foreclosure against the lien transfer bond AFTER the 60-day window expired. The trial court, and affirmed by the appellate court, denied the general contractor’s request to have the lien transfer bond returned and allowed the subcontractor to assert its (dilatory) claim against the lien transfer bond claiming it related back in time to the subcontractor’s initial counterclaim.  HUH?!?

ISSUES GIVING RISE TO THE HUH

Here are the issues with this ruling:

  1. The subcontractor should have foreclosed its construction lien with the 20-day time period from receiving the summons to show cause. The case reflected the subcontractor asserted claims, but not the lien foreclosure claim subject to the summons to show cause. (The appeal did not discuss this point for reasons currently unknown.)
  2. Regardless of (1), the lien was transferred to a bond and a notice of contest of lien was recorded shortening the time period to foreclose the lien (as to the bond) to 60 days. There is case law referencing this procedure. Yet, the subcontractor still did not timely assert its claim against the lien transfer bond.
  3. The trial court applied the relation back doctrine which does nothing but completely water down the statutory purpose of a notice of contest of lien (not to mention the summons to show cause complaint).

RECOMMENDATIONS IN LIGHT OF RULING

In light of this ruling, here are my recommendations:

  1. If you are going to transfer a lien to a lien transfer bond, do it from the get-go. Then, record the notice of contest or pursue the summons to show cause complaint.
  2. If filing the summons to show cause complaint, wait for the 20-day time period to expire. If the time period expires, move to have the lien discharged before making the decision to transfer the lien to a lien transfer bond.
  3. If recording a notice of contest of lien, wait for the 60-day time period to expire before taking action.

The reality is that the procedure implemented in this case should have been fine but for the application of the relation back doctrine that makes you say HUH?!?

As mentioned, if dealing with a lien, please make sure to discuss strategic considerations with a construction counsel that can help navigate the process and advise on the pros and cons.

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.

MOVING FOR CERTIORARI RELIEF IF THE TRIAL COURT IMPROPERLY DISMISSES / DISCHARGES YOUR LIEN

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Your construction lien oftentimes is your leverage to secure payment because the lien collateralizes the amount you are owed against real property, a leasehold interest, or alternative security if the lien is transferred to alternate security.  Having a court dismiss or discharge your construction lien claim is no good.  This is true even if a court dismisses or discharges a construction lien transferred to alternative security such as a lien transfer bond.  Without the lien, there is nothing securing the nonpayment—not the real property, not the leasehold interest (as discussed below), and not the alternative security if the lien is transferred.   But there is valuable recourse–moving for a petition for a writ of certiorari in the appellate court.  “Losing the benefit of a recovery under a bond on a claim to enforce a lien constitutes the type of irreparable harm necessary to entitle a party to certiorari relief.”  James B. Pirtle Construction, Co., Inc. v. Warren Henry Automobiles, Inc., 46 Fla.L.Weekly D2290a (Fla. 3d DCA 2021).

In James B. Pirtle, a contractor recorded a construction lien against a leasehold interest.   The property was owned by the City of Miami (public property) and the City leased the property to an entity, which in turn, entered into a ground lease with the defendant to construct and operate a car dealership. A dispute arose between the contractor and the defendant-tenant regarding the construction of the car dealership and the contractor recorded a construction lien against the leasehold interest.  The defendant transferred the contractor’s lien to a lien transfer bond and the contractor moved to foreclose its lien against the bond.

The defendant-tenant came up with an argument that the contractor could not even foreclose its lien against the leasehold interest because the real property was public property which is NOT lienable.  The trial court bought this argument (not sure why because the reasoning does not seem all that logical!) and the contractor’s lien was discharged.  This was reversed on appeal without a lengthy discussion because the contractor’s lien was NOT against the real property owned by the public body, but against the defendant-tenant’s leasehold interest.

The appellate court explained:

At common law, a leasehold interest was considered a type of personal property, not realty. This concept is incorporated into section 713.11, Florida Statutes, titled, ‘Liens for improving land in which the contracting party has no interest.’ In this section, Florida’s construction lien law explicitly states that ‘[w]hen the person contracting for improving real property has no interest as owner in the land, no lien shall attach to the land….’

***

States and municipalities lease public property to private tenants in order to operate their facilities (e.g., parks, airports), and contractors doing work for those tenants have lien rights not on the property, but on the leasehold interest of that tenant.

James B. Pirtle, Inc., supra (internal citations omitted).

The trial court’s ruling would have ultimately meant that contractors performing work for tenants of publicly owned real property have no lien rights or ability to collateralize their nonpayment.  This naturally does not make much sense as it would simply dilute the fundamental purpose of being able to lien the tenant’s leasehold interest.  Recognizing this huge loss, the tenant moved for certiorari relief and the appellate court reversed the discharge of the lien keeping this important right alive — the lien against the defendant-tenant’s leasehold interest!

 

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: REMEMBER TO TIMELY FORECLOSE LIEN AGAINST LIEN TRANSFER BOND

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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.

 

 

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.

 

 

THERE IS VALUE RECORDING A NOTICE OF CONTEST OF LIEN

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If you receive a construction lien on your property, I have preached the value in recording a Notice of Contest of Lien to shorten the lienor’s statute of limitations to foreclose on the lien from 1 year to 60 days.  If the unwary lienor fails to foreclose its lien within the shortened 60-day window, its lien is extinguished under the law. Ouch! (Check out this article and this article for more on Notice of Contest of Liens.)

 

Now, what if a lienor timely forecloses its lien and during the lien foreclosure lawsuit the lien is transferred from the real property to a lien transfer bond.  Typically, if a lien foreclosure lawsuit is underway and the lien is transferred to a lien transfer bond, the lienor has one year from the date of the transfer to amend its lawsuit to sue the lien transfer bond.   Could the owner record a Notice of Contest of Lien to shorten the lienor’s statute of limitations to amend its lawsuit from one year from the date of the transfer to 60 days?

 

In a recent case, the Second District held that an owner could record a Notice of Contest of Lien AFTER the lienor filed its lien foreclosure lawsuit to shorten to limitations period for the lienor to amend its lawsuit to sue the lien transfer bond to 60 days.   In this case, because the lienor failed to amend its lawsuit within 60 days, the Second District held that the lienor lost its right to sue the lien transfer bond.  This means the lienor no longer gets to foreclose its lien (against the real property or the lien transfer bond) all because a Notice of Contest of Lien was recorded after the lien foreclosure lawsuit was filed and after the lien was transferred to the bond.  This case serves as a huge “W” for owners that appreciate the value of the Notice of Contest of Lien! See Hiller v. Phoenix Associates of South Florida, Inc., 41 Fla.L.Weekly D881d (Fla. 2d DCA 2016) (“It is undisputed Phoenix [lienor] took no action in this case within sixty days after Hiller [owner] transferred the lien to a bond and served the notice of contest.  It is this failure on the part of Phoenix that compels reversal in this case.  The fact that Phoenix had a proceeding pending against the lien at the same time of the transfer did not excuse compliance with the other provisions of Chapter 713 [Lien Law]).”)

 

Remember, there is oftentimes a strategic value recording a Notice of Contest of Lien  if you are dealing with a construction lien.

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.

 

RECORDING THE NOTICE OF BOND TO TRANSFER THE CONSTRUCTION LIEN TO THE PAYMENT BOND

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If a contractor furnishes a payment bond for a private project (per Florida Statute s. 713.23), a copy of that bond should be recorded with the Notice of Commencement recorded in the official records of the county where the project is located. A contractor furnishes a payment bond on a private project in order to exempt the owner’s real property from construction liens.

 
There are times, though, where a subcontractor or a supplier will still go ahead and record a lien against the owner’s real property even though there is a payment bond that was recorded with the Notice of Commencement. This is a frustrating scenario because the point of paying for the payment bond and furnishing the bond is to prevent this very scenario from occurring. No worries, however, because Florida’s Lien Law efficiently addresses this scenario by allowing the contractor or owner to record in the official records and serve on the lienor a verified Notice of Bond (attaching a copy of the payment bond) that will operate to transfer the lien to the payment bond. Fla. Stat. s. 713.23(2). A copy of the Notice of Bond form is provided below.

 
Moreover, this Notice of Bond procedure would apply even if the contractor furnished a payment bond, but for whatever reason, that payment bond was not recorded with the Notice of Commencement. When this happens, and it does happen, the subcontractor or supplier may honestly not know that the contractor actually furnished a payment bond and will move forward and record a lien. Again, no worries, because the contractor or owner should implement the same procedure by recording and serving the lienor with a Notice of Bond. Every lien recorded AFTER the execution and delivery of the payment bond will be transferred to the payment bond through the recording of the Notice of Bond (attaching a copy of the payment bond).

 

Now, if the contractor did NOT furnish a payment bond BEFORE the lien was recorded, the contractor could move to transfer the lien to a lien transfer bond pursuant to Florida Statute s. 713.24. This is different than a payment bond. The lien transfer bond is simply a mechanism where a contractor through a statutory procedure procures and records a lien transfer bond that is designed to transfer a specific lien to the security of the bond. (When a contractor procures a lien transfer bond, the bond must be for the principal amount of the lien, plus the greater of $1,000 or 25% of the principal amount to cover potential attorney’s fees and court costs, plus three years worth of interest on the principal amount at the prevailing statutory rate.)

 

 

NOTICE OF BOND

To (Name and Address of Lienor)
You are notified that the claim of lien filed by you on ___, ___, and recorded in Official Records Book ___ at page ___ of the public records of ___ County, Florida, is secured by a bond, a copy being attached.
Signed: (Name of person recording notice)

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.

OH NO! A LIEN IS RECORDED! WHAT ARE SOME OF MY OPTIONS?

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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.

LIEN TRANSFER BONDS AND VENUE

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The Fourth District Court of Appeals in Attaway Electric, Inc. v. Kelsey Construction, Inc., 38 Fla. L. Weekly D1693a (Fla. 4th DCA 2013)  recently ruled that an action on a lien transfer bond (posted pursuant to Fla. Stat. s. 713.24 in the county where the project is located and lien recorded) needs to be initiated in the county where the bond is recorded. This means that even if there is a contract between the parties that requires a different venue outside of where the lien transfer bond is posted, that venue provision will not be enforced so that an action as to the lien transfer bond and an action under the contract can both be brought in the same county, i.e., where the lien transfer bond is posted.
In Attaway Electric, a subcontractor recorded liens for alleged nonpayment on Broward County projects with the same general contractor. The liens were transferred to lien transfer bonds by the general contractor. The subcontractor moved to foreclose the liens in Broward County and also sued the general contractor for breach of contract. The general contractor then moved to transfer venue to Orange County pursuant to a forum selection provision in the subcontract. The trial court granted the motion and transferred venue. The Fourth District, however, reversed finding that an action on a lien transfer bond must be brought in the county where it is recorded and “contract claims involving the same matters should be brought in the same place to avoid inconsistent rulings.” Attaway Electric.

 
This recent decision is important because contractors that want to obtain the benefit of a forum selection provision in a subcontract probably need to have a payment bond and ensure in the subcontract that the forum selection provision covers claims as to the payment bond surety. If there is no payment bond, specifically for a private project, a subcontractor can lien the private project for monies owed. If the general contractor (or even perhaps the owner) then transfers the lien to a lien transfer bond, the subcontractor will be able to foreclose the lien as to the lien transfer bond in the county where the bond is recorded as well as pursue a breach of contract claim against the contractor in the same county, even if the subcontract contains a forum selection provision with a different venue.

 

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.