NOTE: After this article was published the Massachusetts' legislature changed the mechanic's lien statute substantially in August 1996. The new mechanic's lien statute went into effect in February 1997. For a guide to procedures and deadlines under the new mechanic's lien ststute, see Construction Law Comments - Fall 1996.
By statute (General Laws, c.254) almost every general contractor, subcontractor and supplier on private building construction in Massachusetts has a right to a mechanic's lien to secure amounts due for labor and materials furnished. Frequently, it is the only security available. But because of the complexity associated with mechanic's liens, or the fear of upsetting relations with the owner or general contractor, many never invoke that security. Many others do so only when a loss is apparent, which is often too late to obtain mechanic's lien protection.
While obtaining and preserving a mechanic's lien does involve some complexity, there need be no mystery about the nature and extent of mechanic's lien protection as the following questions and answers demonstrate.
Question: What is a mechanic's lien?
Answer: A "contractor's" mechanic's lien is simply a security interest in the land on which the Project is built. Its sole purpose is to secure the payment of amounts due those who furnish labor and materials in construction of the Project.
Question: Who may file for a mechanic's lien?
Answer: Every general contractor who has a written contract with the owner so long as that contract states a specific completion date. Every subcontractor and supplier who has a written contract with the general contractor or a subcontractor of any tier, whether or not the contract contains a specific completion date.
Question: Are mechanic's liens available on public work?
Answer: No, just on private building contracts. There is no right to a lien on public property. Different forms of payment security, including statutory bonds, are available on public work.
Question: How is a mechanic's lien obtained?
Answer: A general contractor obtains a mechanic's lien by filing a notice of its contract in the Registry of Deeds in the county where the Project is located. A subcontractor or supplier obtains one by filing a notice of its contract in the Registry of Deeds, and providing written notice to the owner. The form for both notices is provided in the statute.
Question: Is there any way to obtain mechanic's lien security without a written contract and without filing a Notice of Contract?
Answer: Yes. A subcontractor or supplier may piggy-back onto a general contractor's lien, so long as the general contractor has filed a valid Notice of Contract. You need do nothing to establish such a lien prior to filing your claim, but may lose it if the general contractor withdraws his Notice of Contract. The lien is limited to labor and materials furnished prior to the date of completion stated in the general contractor's Notice of Contract.
Question: When is the earliest a mechanic's lien may be obtained?
Answer: As soon as your contract is signed. The Notice of Contract may be filed before any work is performed.
Question: When is the latest a mechanic's lien may be obtained?
Answer: A general contractor may file its Notice of Contract up to the completion date stated in its contract. Filing beyond the completion date will not create a mechanic's lien. A subcontractor or supplier whose contract states a completion date must file no later than its completion date, just like the general contractor. A subcontractor or supplier whose contract states no completion date may estimate a reasonable completion date (provided it is prior to its actual completion, and within the completion date in the general contract) and may file its Notice of Contract no later than its estimated date of completion.
Question: Is there any advantage to filing early?
Answer: Yes, there is a big advantage. The earlier you file, the more protection you have. Remember, the security afforded by a mechanic's lien is the owner's interest in the land. To the extent the owner's interest is encumbered by advances on the construction loan or by attachments made before a Notice of Contract is filed, the value of the owner's interest in the land is reduced. Any reduction in the value of the owner's interest reduces the security afforded by a mechanic's lien. However, when you file a Notice of Contract before an advance made by the construction lender or before an attachment of the land by some other creditor, your mechanic's lien gives you the priority right to the owner's interest. In the event there is a forced sale of the property, those who filed their mechanic's lien early stand the best chance of getting paid. In addition, the mechanic's lien statute limits a subcontractor's or supplier's security to an amount no greater than the unexpended general contract balance at the time the subcontractor or supplier files its Notice of Contract and gives notice to the owner. Thus, if the owner has paid the general contractor $975,000 of a $1,000,000 general contract price before you file, available security is limited to $25,000 even if you are owed a far greater amount. And if others file about the same time, you will have to share the balance. On the other hand, if you file early, and the unexpended general contract balance is $800,000, you will have plenty of security. Question: Is a mechanic's lien effective in obtaining payments?
Answer: Yes. It can be very effective because it provides a strong incentive to payment. The bank making the construction loan may be unwilling to advance funds over a mechanic's lien because the lien would have a secured priority position ahead of the bank. Consequently, the owner will generally make certain the party filing the lien gets paid in order to satisfy the bank.
Question: If I release my lien to obtain a periodic payment, what security do I have for future payments?
Answer: If you release your lien completely, you lose all lien rights created by filing the Notice of Contract. However, so long as your contract completion date has not passed, you may immediately file a new Notice of Contract which creates a new lien, although from a later date. But there is no necessity to release your lien completely to obtain a partial payment. You can provide a partial release of lien, releasing all claims up to the date of payment (excepting retainage and unresolved claims). Such a release protects the legitimate interests of the owner and the construction lender, and still preserves your mechanic's lien to secure future payments.
Question: What about contract provisions that say I cannot file a mechanic's lien or must waive the right to file?
Answer: By statute such provisions are void and unenforceable in Massachusetts. They are regarded as against public policy. They have no validity and may be ignored.
Question: Other than the Notice of Contract, is there anything else I must file to preserve the mechanic's lien?
Answer: Yes. You must file a Sworn Statement of your claim in the Registry of Deeds within thirty days of the completion date stated in your Notice of Contract. And within sixty days of filing the Sworn Statement, you must file in Court and in the Registry of Deeds a complaint to enforce the mechanic's lien against the owner. If you miss either deadline, the lien is automatically dissolved.
Question: What if I have not filed a Notice of Contract but am piggy-backing onto the general contractor's Notice of Contract?
Answer: You must follow the same procedure to preserve your lien described above, except you must file your Sworn Statement of Claim within 30 days of the general contractor's completion date.
Question: What happens if I am not complete by the completion date stated in the Notice of Contract?
Answer: If your contract contains a specific completion date, you must seek a written extension of the contract completion date signed by the party with whom you have your contract. You must then file a Notice of Extension in the Registry of Deeds stating the new completion date, and you must do so prior to the expiration of the original completion date. A subcontractor or supplier must, in addition, provide written notice of the extension to the owner. If you cannot obtain a written extension in time to file the Notice of Extension in the Registry, you must meet the deadline for filing your Sworn Statement and complaint based upon the completion date stated in the Notice of Contract, irrespective of actual contract completion. A subcontractor or supplier without a written completion date may estimate a reasonable extension of contract completion, and file a Notice of Extension based on that estimated date, provided it is filed before the completion date stated in the Notice of Contract.
Question: If one of my subcontractors or suppliers files a mechanic's lien can I dissolve that lien?
Answer: Yes. First, you can pay the claim in exchange for a complete release of the lien. Once filed in the Registry of Deeds, such a release dissolves the lien. Second, if full payment is not possible because you haven't been paid or because the subcontract work is incomplete or because there are disputes, you may still dissolve the lien by filing a lien bond in the Registry of Deeds. In effect, the statute permits you to substitute a bond as payment security in place of the owner's land.
Question: Do I need a lawyer to file a mechanic's lien?
Answer: Not necessarily. There is a risk in going alone, but if you understand the statute and are able to obtain a sufficient legal description of the property to be liened, you can prepare and file the Notice of Contract yourself. You may also be able to file the Sworn Statement so long as you are careful to accurately describe your claim, and keep track of filing deadlines. However, you will need an attorney to file the complaint to enforce the lien.
Question: What happens if I establish my lien in court and the owner will not pay voluntarily?
Answer: The property will be sold at auction, subject to prior encumbrances, and the proceeds will be used to pay lien creditors.
NOTE: A bill is presently under consideration in the Massachusetts legislature that, if adopted, will considerably change current procedure governing mechanic's liens. However, there is opposition to the bill and no assurance it will be enacted in whole or in part. The current statute has been in effect for more than 75 years. If a new statute is enacted, we will explain changes from current procedure in a future issue of this newsletter.
This
newsletter is intended to provide general information of interest to the
construction industry. It is not intended to provide specific legal advice or
to address fact specific issues. For that you should consult your legal
counsel. Corwin & Corwin LLP assumes no liability in connection with the
use of this newsletter. The Supreme Judicial Court may consider this material
advertising.
©1992-2000 Corwin & Corwin LLP. All rights reserved.