What is a fraudulent lien? 

 

Just because a construction lien is recorded does not mean the lien is a fraudulent lien.  In fact, getting a lien declared a fraudulent lien is not an easy feat.

 

A fraudulent lien is defined in Florida’s Lien Law.  Florida Statute s. 713.31(2)(a) states:

 

“Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”

 

But, “a minor mistake or error in a claim of lien, or a good faith dispute as to the amount due does not constitute a willful exaggeration that operates to defeat an otherwise valid lien.” Fla. Stat. s. 713.31(2)(b).

 

So, a lien that (a) willfully exaggerates the amount, (b) willfully includes work not performed or materials not furnished, or is (c) compiled with willful and gross negligence, constitutes a fraudulent lien.   But, a minor mistake in a lien does not constitute willful exaggeration to constitute a fraudulent lien. And, a good faith dispute as to what a lienor claims it is owed does not constitute willful exaggeration to constitute a fraudulent lien.

 

What is the recourse if a fraudulent lien is recorded?

 

Florida Statute s. 713.31(2)(b) explains:

 

“It is a complete defense to any action to enforce a lien under this part, or against any lien in any action in which the validity of the lien is an issue, that the lien is a fraudulent lien; and the court so finding is empowered to and shall declare the lien unenforceable, and the lienor thereupon forfeits his or her right to any lien on the property upon which he or she sought to impress such fraudulent lien.”

 

So, if a fraudulent lien is declared, the lienor loses its lien—the lien becomes unenforceable. 

 

Plus, with respect to an action for damages, s. 713.31(2)(c) states:

 

“An owner against whose interest in real property a fraudulent lien is filed, or any contractor, subcontractor, or sub-subcontractor who suffers damages as a result of the filing of the fraudulent lien, shall have a right of action for damages occasioned thereby. The action may be instituted independently of any other action, or in connection with a summons to show cause under s. 713.21, or as a counterclaim or cross-claim to any action to enforce or to determine the validity of the lien. The prevailing party in an action under this paragraph may recover reasonable attorney’s fees and costs. If the lienor who files a fraudulent lien is not the prevailing party, the lienor shall be liable to the owner or the defrauded party who prevails in an action under this subsection in damages, which shall include court costs, clerk’s fees, a reasonable attorney’s fee and costs for services in securing the discharge of the lien, the amount of any premium for a bond given to obtain the discharge of the lien, interest on any money deposited for the purpose of discharging the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due or to become due and the amount actually due or to become due.”

 

So, in addition to the fraudulent lien being declared unenforceable, the lienor can be liable for damages including, without limitation, attorneys’ fees, court costs, and, potentially, punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due and the amount actually due.

 

What does this mean?

 

It is important for lienors  to consult with counsel prior to preparing and recording a lien since a routine defense to a lien is that the lien is an unenforceable fraudulent lien.

 

Here are important tidbits regarding fraudulent liens:

 

• A fraudulent lien can be determined if a lien includes amounts that are NOT proper lienable amounts or if the lienor is NOT a proper lienor.  Check out this article where appellate court found that lienor was not a proper lienor and, even if it was, its lien included improper amounts and remanded case to trial court to basically deem lien fraudulent.  

 

• Including amounts in the lien NOT authorized by contract can render the lien fraudulent. See Skidmore, Owings, and Merrill v. Volpe Const. Co., Inc., 511 So.2d 642, 644 (Fla. 3d DCA 1987) (“The inclusion of items not authorized by change orders or by contract renders the lien fraudulent and unenforceable.”); accord In re Hayes, 305 B.R. 361, 366-67 (M.D.Fla. 2003).   For instance, think disputed change order requests.  Sometimes, it is better to pursue these amounts in a breach of contract action so as not to risk the lien being declared fraudulent.  But see In re American Fabricators, 917 B.R. 987, 992 (M.D.Fla. 1996): “The test for determining whether extras [changes] are lienable under Florida’s mechanics’ lien law is whether work was performed (i) in good faith; (ii) within a reasonable time; (iii) pursuant to the terms of the contract; and (iv) is necessary to finish the job.”

 

• Consulting with counsel including full and complete disclosure of pertinent facts regarding the lien will help establish that there is a good faith dispute as to the amount in the lien and, therefore, there is no willful exaggeration to support a fraudulent lien.   As one appellate court explained “[A] lienor can rely on consultation with counsel prior to filing the claim of lien as evidence of good faith only in the event of a full and complete disclosure of the pertinent facts to the attorney from whom the advice is sought before the lienor acts on the advice. Consultation with an attorney is not entitled to any legal weight if the contractor did not disclose all pertinent facts to the attorney.”  Check out this article for more information on the value of consulting 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.