Tag Archives: lien

PRESERVING YOUR RIGHTS TO SECURE PAYMENT ON CONSTRUCTION PROJECTS (WITH EXAMPLES)

Posted on by

shutterstock_330137966All participants across the construction industry should understand what efforts they should take to maximize and collateralize payment.  No one wants to work for free and, certainly, no one in the construction industry wants to work without ensuring there is some mechanism to recover payment in the event they remain unpaid.   Being proactive and knowledgeable can go a long way when it comes to recovering your money.

 

Your Contract – It starts with the contract.  You should understand those risks that are allocated to you and those that are allocated to another party.  And, you should understand the contractual mechanism to resolve claims and disputes and whether your contract has a prevailing party attorney’s fees provision. In addition to contractual rights, there are tools for you to maximize your collection efforts.

 

Construction Liens – Construction liens apply to private projects, not public projects.  This is a very valuable tool as they allow you to collateralize nonpayment against real property.  It is really important you know what you need to do to preserve your construction lien rights.  Construction liens are a creature of statute and the failure to properly preserve and perfect your construction lien rights can be fatal to your lien claim.  

 

Example 1.   I am a general contractor on a private condominium project.  I am owed $1,000,000 from the developer.    As the general contractor, I can record a construction lien within 90 days from my final furnishing on the project exclusive of punchlist and warranty work.   (This is good for one year from recording unless the developer takes steps to shorten the limitations period to foreclose the lien.)  I serve a copy of the lien on the developer (and others that may be listed in the Notice of Commencement) within 15 days of the recording of the lien.  At least 5 days before filing suit to foreclose on the lien, I need to serve a Contractor’s Final Payment Affidavit on the developer.

***

Example 2.  I am a subcontractor on a private condominium project.  I am owed $1,000,000 from the general contractor.   Since I am not in privity with the owner/developer, I need to serve a Notice to Owner within 45 days of my initial furnishing on the owner and general contractor (and others listed in the Notice of Commencement).  I need to record my construction lien within 90 days from my final furnishing and furnish a copy on the owner within 15 days from the recording of the lien.  Also, since I am not in privity with the owner/developer, I do not need to serve a Contractor’s Final Payment Affidavit.  I need to sue on the lien within 1 year from the recording of the lien (unless efforts are taken to shorten the limitation period).

–

 

Payment Bonds (Private Projects) – There can be statutory payment bonds on private projects.   The Notice of Commencement will attach a copy of the payment bond, if one exists.  If one is not referenced and attached, then that means the claimant has lien rights.  It is really important you know what you need to do to preserve your payment bond rights on private projects – they are not necessarily the same as preserving payment bond rights on public projects.   Preserving your bond rights allows you to pursue your claim for nonpayment against a surety bond.

 

Example 3.  I am a subcontractor on a private condominium project. I am owed $1,000,000 from the general contractor.  I know from the Notice of Commencement that the general contractor furnished an unconditional payment bond.  Since I am in privity with the general contractor, I do not need to serve a Notice of Intent to look to the Bond on the contractor.   But, within 90 days of final furnishing, I need to serve the general contractor and payment bond surety with a Notice of Non-Payment.  I then need to sue on the payment bond within 1 year from my final furnishing.

  

Payment Bonds (Public Projects)—There are statutory payment bonds on Florida public projects and Federal projects.  There are different procedures to preserve rights depending on the type of public project and it is important to know what steps you need to take to preserve your rights.  Preserving your bond rights allows you to pursue your claim for nonpayment against a surety bond.

  

Example 4.  I am a subcontractor on a Florida school public project. I am owed $1,000,000 from the general contractor.  I know that since I am in privity with the general contractor, I do not need to serve a Notice of Intent to look to the Bond on the contractor.  I also know since I am in privity with the general contractor, I do not need to serve a Notice of Non-Payment on the general contractor and surety.  (Note, this is different than if this were a private project).   I need to sue on the payment bond within 1 year from my final furnishing. 

 ***

Example 5.  I am a supplier to a subcontractor on a Florida school public project.  I am owed $1,000,000 from the subcontractor. Since I am not in privity with the general contractor, I need to serve a Notice of Intent to look to the Bond within 45 days of my initial furnishing.  Also, since I am not in privity with the general contractor, I need to serve a Notice of Non-Payment on the general contractor and surety within 90 days of my final furnishing.  I need to sue on the payment bond within 1 year from my final furnishing.

 ***

Example 6.  I am a sub-subcontractor on an FDOT public transportation project.  I am owed $1,000,000 from the subcontractor.  Since I am not in privity of contract with the general contractor, I need to serve a Notice of Intent to look to the Bond on the general contractor within 90 days of my initial furnishing. (Note, this is different than other public projects.)   Also, since I am not in privity with the general contractor, I need to serve a Notice of Non-Payment within 90 days of my final furnishing on the general contractor and surety. I then need to sue on the payment bond within 365 days of the final acceptance of the contract and work by the FDOT.  (Note, this is different than other public projects.)

 ***

Example 7.  I am a subcontractor to a prime contractor on a federal project.  I am owed $1,000,000 from the prime contractor.   Since this is a federal project, there is no preliminary notice requirement.  (Note, this is different than other public projects.)  Since I am in privity with the general contractor, I do not need to serve a Notice of Non-payment on the prime contractor within 90 days of my final furnishing. I need to sue on the payment bond within 1 year from my final furnishing.

 ***

Example 8.  I am a supplier to a subcontractor on a federal project.  I am owed $1,000,000 from the subcontractor.  Since this is a federal project, there is no preliminary notice requirement.   Also, since I am not in privity with the prime contractor, I need to serve a Notice of Non-Payment only on the prime contractor within 90 days of my final furnishing.  (Note, this is different than other public projects.)  I need to sue on the payment bond within 1 year from my final furnishing.

 

 

As reflected from the examples, preserving and perfecting construction lien and payment bond rights is nuanced and depends on the type of project.   Know your rights.  Be proactive when it comes to preserving and perfecting your rights.  And, make sure to utilize the services of a construction attorney that can help you maximize your collection efforts correctly. 

 

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.

SIGNIFICANT ISSUES TEST APPLIES TO FRAUDULENT LIEN CLAIMS TO DETERMINE ATTORNEY’S FEES

Posted on by


Construction lienors need to appreciate on the frontend that recovering statutory attorney’s fees in a construction lien action is NOT automatic—far from it.  This is because the prevailing party for purposes of attorney’s fees in a construction lien action is determined by the “significant issues test,” a subjective test with no bright line standards based on who the trial court finds prevailed on the significant issues in the case.  If you want to talk about the subjective and convoluted nature of recovering attorney’s fees in a construction lien action under the significant issues test, a recent opinion by the Fourth District Court of Appeal is unfortunately another nail in the coffin.   

 

In Newman v. Guerra, 2017 WL 33702 (Fla. 4th DCA 2017), a contractor recorded a construction lien on a residential renovation project and filed a lien foreclosure lawsuit.  The homeowner countersued the contractor and asserted a fraudulent lien claim pursuant to Florida Statute s. 713.31.  An evidentiary hearing was held on whether the lien was a fraudulent lien and the trial court held that the lien was fraudulent (therefore unenforceable) because it included amounts that were not lienable under the law.  The remaining claims including both parties’ breach of contract claims proceeded to trial.  There was no attorney’s fees provision in the contract.  At the conclusion of the trial, the court found that the contractor was entitled a monetary judgment on its breach of contract claim. 

 

Question:  If the owner prevailed in the contractor’s construction lien claim and established that the lien was in fact fraudulent, is the owner entitled to his statutory attorney’s fees? 

 

While equity may suggest “yes” as the answer, the answer is not necessarily.  This is because of the significant issues test where the court is going to look at the outcome of the entire litigation to determine the party that prevailed on the significant issues in the entire case.   Since the contractor ultimately recovered a money judgment, the court held the owner was not the prevailing party for purposes of attorney’s fees under the significant issues test.  The contractor was not either, but this is beside the point since the owner established the lien was fraudulent and the contractor recovered a money judgment under a breach of contract claim that did not provide for attorney’s fees.  Nonetheless, the court maintained:

 

In sum, the trial court properly applied the “significant issues” test…in denying the homeowner’s claim for attorney’s fees under section 713.31 [fraudulent lien statute]. Even if a party prevails on a fraudulent lien claim, the party must be the prevailing party in the case as a whole to be entitled to attorney’s fees under section 713.31.

Newman, supra, at *4.

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.

 

FINAL FURNISHING DATE IS A QUESTION OF FACT

Posted on by


Construction liens need to be recorded within 90 days from the lienor’s final furnishing date on the project.  This date is exclusive of punchlist or warranty work. The final furnishing date needs to be proven at trial to establish that the construction lien was timely recorded.  If there is an evidentiary dispute as the final furnishing date (the contractor claims the date was “x” to establish the lien was timely and the owner claims the date was “y” to establish the lien was untimely), then the date is a question of fact to be determined by the jury. 

 

For instance, in Best Drywall Services, Inc. v. Blasczyk, 2016 WL 6246701 (Fla. 2d DCA 2016), a contractor and owner entered into an oral agreement for a residential renovation project.  The contractor recorded a construction lien after its final two invoices went unpaid.  During trial, the contractor offered conflicting evidence as to when its final furnishing date on the project was.  Numerous dates were offered in the record including dates that were more than 90 days prior to the date the contractor recorded its lien, meaning the lien was arguably untimely.  As a result, the trial judge entered a directed verdict in favor of the owner and against the contractor on the contractor’s lien claim finding the lien was untimely recorded. 

 

On appeal, the Second District reversed the directed verdict against the contractor on its construction lien expressing that the conflicting evidence on different final furnishing dates was sufficient to create an issue of fact for the jury to determine the timeliness of the contractor’s lien–“If there are conflicts in the evidence or different reasonable inferences that may be drawn from the evidence, the issue is factual and should be submitted to the jury.”  Best Drywall Services, Inc. supra quoting Simz v. Cristinzio, 898 So.2d 1004, 1005 (Fla. 2d DCA 2005). 

 

The final furnishing date is an important part of any construction lien claim to establish the timeliness of the lien.  Make sure this final furnishing date can be supported by reasonable competent evidence (testimonial evidence supported by daily reports, payroll records, pay apps, inspections, etc.). 

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.

PROPERLY TERMINATING A NOTICE OF COMMENCEMENT

Posted on by


In prior postings I have discussed the importance of the notice of commencement, particularly when it comes to notifying lienors of applicable information regarding their construction lien or payment bond rights and the priority of construction liens.

 

In certain circumstances, it may be in an owner’s best interest to terminate the effectiveness of the notice of commencement by recording a notice of termination of the notice of commencement.   This is governed by Florida Statute s. 713.132 set forth at the bottom of this article.

 

An owner cannot record a notice of termination of the notice of commencement as a “gotcha” tactic simply because it does not want to pay lienors or wants to lessen the value of potential liens by impacting the priority of those liens.  If this were the case, owners may regularly try to employ this tactic as a means to reduce payment obligations or pay cents on the dollar (since a construction lien is only as good as the priority of that lien and the equity in the real property).   To this point, s. 713.132(3) specifies those occasions when an owner can record a notice of termination of a notice of commencement:

 

An owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with s. 713.06(4). If an owner or a contractor, by fraud or collusion, knowingly makes any fraudulent statement or affidavit in a notice of termination or any accompanying affidavit, the owner and the contractor, or either of them, as the case may be, is liable to any lienor who suffers damages as a result of the filing of the fraudulent notice of termination; and any such lienor has a right of action for damages occasioned thereby.

 

In a nutshell, an owner may terminate the notice of commencement by:

  1. Recording a notice of termination that references the OR BK and PG of the notice of commencement and contains the same information in the notice of commencement;
  2. Identifying the date in the notice of termination that the notice of commencement will be terminated, but the termination cannot be less than 30 days after the notice of termination is recorded (meaning the notice of commencement will NOT be terminated until at least 30 days after it is recorded);
  3. Stating that ALL lienors have been paid in full;
  4. Stating that before recording the notice of termination of the notice of commencement, the owner served a copy of the notice of termination on its contractor, anyone directly hired by the owner, and on anyone that served a notice to owner UNLESS the owner received a final waiver and release of lien upon final payment from that lienor; and
  5. Including the contractor’s payment affidavit identifying the amount it is owed and that it owes lienors, which the owner can rely on in preparing the notice of termination. 

 

Once the notice of termination of the notice of commencement is recorded, construction liens recorded after the termination will NOT relate back to the notice of commencement (thus, impacting the priority of the liens).  This is why it is important to record any construction lien within 30 days once you receive a notice of termination of the notice of commencement if you have NOT been paid in full or there is a payment dispute.

 

For example, in Lasalle Bank National Association v. Blackton, Inc., 59 So.3d 329 (Fla. 5th DCA 2011), the home-builder recoded a notice of termination of the notice of commencement that terminated the notice of commencement 30 days from its recording.  Attached to the notice of termination was the homebuilder’s payment affidavit.  There were no liens within this 30-day window.   After homeowners moved into the house and their mortgage was recorded, they notified the homebuilder of certain defects/warranty items, and the homebuilder engaged a new subcontractor to fix the defects/warranty items.  The subcontractor was not paid and recorded a lien.  The issue was whether the subcontractor’s lien related back to the notice of commencement and took priority over the homeowners’ mortgage.   The Fifth District Court of Appeal held that the mortgage had priority since the notice of commencement was terminated and the lien was recorded after the notice of commencement had been terminated.  This meant the lien was inferior to the mortgage. 

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.

IMPACT OF LIS PENDENS ON UNRECORDED INTERESTS / LIENS

Posted on by


In a previous article, I discussed the importance of recording a lis pendens in a construction lien foreclosure action.

 

There is another noteworthy point relating to the impact of lis pendens that can provide quite a bit of consternation.

 

Florida Statute 48.23(1)(d) provides:

 

Except for the interest of persons in possession or easements of use, the recording of such notice of lis pendens, provided that during the pendency of the proceeding it has not expired pursuant to subsection (2) or been withdrawn or discharged, constitutes a bar to the enforcement against the property described in the notice of all interests and liens, including, but not limited to, federal tax liens and levies, unrecorded at the time of recording the notice unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 30 days after the recording of the notice. If the holder of any such unrecorded interest or lien does not intervene in the proceedings and if such proceedings are prosecuted to a judicial sale of the property described in the notice, the property shall be forever discharged from all such unrecorded interests and liens. If the notice of lis pendens expires or is withdrawn or discharged, the expiration, withdrawal, or discharge of the notice does not affect the validity of any unrecorded interest or lien.

 

The language in this statute requires persons with unrecorded interests / liens to intervene in a lawsuit subject to a lis pendens within 30 days or else they are barred from proceeding against the property (unless the property subject to the lis pendens is not foreclosed on or the lis pendens is discharged).  This is a harsh outcome because such a person’s (unrecorded) interest may not accrue until it is already too late—beyond the 30 days of the recording of the lis pendens.

 

The best way to explain the potentially harsh application of this statute is to examine its application in a few cases.

 

In Adhin v. First Horizon Home Loans, 44 So.3d 1245 (Fla. 5th DCA 2010), a lender recorded mortgages associated with a construction loan.  The borrower entered into an agreement to sell parcels and any homes currently built on the parcels.  The parcels were sold, however, the closing agent failed to record the deeds and mortgages associated with the closing, and failed to secure any release from the construction lender as to the parcels that had been sold.   Subsequently, the construction lender foreclosed on its mortgage which included a foreclosure that applied to the parcels that had been sold.  A lis pendens had been recorded.   Approximately two months after the lis pendens was recorded, the purchasers of the parcels recorded their deeds and corresponding mortgages and moved to intervene in the construction lender’s foreclosure lawsuit.   The construction lender opposed the motion to intervene arguing that the purchasers of the parcels failed to timely intervene pursuant to s. 48.23(1)(d) since the lender’s foreclosure action impacted their rights to the parcels they purchased.  The appellate court agreed with the lender finding that the language operates as a nonclaim statute that bars enforcement against the property by a holder of an unrecorded interest (such as the purchasers of the parcels in this case) after the prescribed statutory period (30 days), provided the litigation proceeds to a final judgment and judicial sale of the foreclosed property.  This meant the purchasers of the parcels could not intervene and their rights as it related to their parcels were entirely dependent on whether the construction lender’s foreclosure action proceeded to a final foreclosure judgment and judicial sale of the property (inclusive of their property).  Ouch!!!

 

In Jallali v. Knightsbridge Village Homeowners Ass’n, Inc., 2016 WL 3548843 (Fla. 4th DCA 2016), a homeowner’s lender filed a mortgage foreclosure action and recorded a lis pendens.   While the mortgage foreclosure action was pending, the homeowner’s association recorded a lien for unpaid assessments and moved to foreclose its assessment lien.  The issue was whether the lender’s notice of lis pendens barred the homeowner’s association’s subsequent foreclosure action based on its lien for unpaid assessments.   The appellate court held it did not because the lien was based on a recorded Declaration of Covenants that was recorded prior to the filing of the lis pendens—thus, s. 48.23(1)(d) did not apply because the Declaration was an interest recoded prior to the lis pendens.

 

In Ober v. Town of Lauderdale-by-the-Sea, 2016 WL 4468134 (Fla. 4th DCA 2016), a lender filed a foreclosure action and recorded a lis pendens.  The lender obtained a final judgment in foreclosure.  Subsequent to the final judgment in foreclosure, but before any foreclosure sale, the Town of Lauderdale-by-the-Sea recorded liens against the property for code violations that occurred post-final judgment.  The property was sold at a foreclosure sale and the new owner filed suit to quiet title and remove the Town’s liens.  The appellate court held that s. 48.23(1)(d) does not operate to bar liens that accrue and are recorded AFTER the final judgment.  Hence, recording a lis pendens does not operate to bar liens that occur (accrue) and are recorded post-final judgment but before a foreclosure sale.

 

When it comes to construction projects, sometimes there are multiple construction lien foreclosure actions relating to the same property. All of these foreclosure actions are routinely accompanied by a lis pendens.  Some of these actions could arguably be barred under s. 48.23 since they may be based on liens recorded outside of the 30-day window of the first lis pendens that was recorded.  So, if the initial foreclosure action results in a judicial sale of the property, the subsequently recorded liens on the property whose holder’s failed to timely intervene may be out of luck – they would not be able to foreclose on the same property that was already sold at a judicial sale.  On the other hand, under Jallali, liens relate to a notice of commencement, and similar to a Declaration of Covenants (or Condominium), could be considered a recorded interest.  The notice of commencement would be recorded prior to any construction lien, meaning that any construction lien is not based on an unrecorded interest at the time a lis pendens is recorded.  If this is true, than s. 48.23(1)(d) arguably would not apply to bar any liens that accrue and/or are recorded after 30 days from the initial lis pendens.  To preserve this argument, it is important that liens are recorded within the effective period of a notice of commencement so that the liens can relate back to the date the notice of commencement is recorded. 

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: PERFECTING & PRESERVING CONSTRUCTION LIEN & PAYMENT BOND RIGHTS

Posted on by

imagesYou are a subcontractor, sub-subcontractor, or supplier on a construction project.  What steps can you take to maximize your ability to collect payment?  

 

 

  1. Read this chart to understand what steps you need to undertake to preserve and perfect construction lien or payment bond rights. This chart will assist you with what notices you may need to serve to preserve your lien or payment bond rights and the timing to do so.  
  2.  Read this article that has tidbits to maximize payment on a private construction project.  This article will be beneficial for any subcontractor, sub-subcontractor, or supplier that performs work on a private construction project. 
  3. Take a look at the below presentation.  This is a presentation I put on with a notice company that summarizes steps you can implement to preserve your rights and increase your chances to timely collect payment.
  4. Please consult a construction attorney so that you can be proactive and not necessarily reactive when it comes to perfecting and preserving your rights.

 

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/06/FL-Mechanics-Liens-Roofers-DMA.pptx”]

 

 

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: FILING THE “SHOW CAUSE” COMPLAINT REGARDING A CONSTRUCTION LIEN

Posted on by

imagesI have talked about your options when there is a construction lien on your property.  One option discussed is the “show cause” complaint pursuant to Florida Statute s. 713.21(4) where you sue the construction lienor giving them 20 days to show cause why its lien should not be enforced or vacated and cancelled. If the lienor fails to show cause within the 20 days by filing its construction lien foreclosure lawsuit within this time frame, the court must order cancellation of the lien. See Ruffolo v. Parish & Bowman, Inc., 966 So.2d 434, 436 (Fla. 1st DCA 2007) (“When a property owner invokes section 713.21(4), a lienor must strictly comply with section 713.21(4) in order to preserve its lien, and a trial court is without discretion to deviate from the statutorily specified time limits.”); Dracon Const. Inc. v. Facility Const. Management, Inc., 828 So.2d 1069 (Fla. 4th DCA 2002) (filing a motion for an extension of time to assert lien foreclosure lawsuit is not good cause warranting the court’s cancellation of the subcontractor’s 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.

 

THERE IS VALUE RECORDING A NOTICE OF CONTEST OF LIEN

Posted on by


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.