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Construction Law Authority / Construction Liens  / Lien Laws & Out-of-State Construction Projects (Part IV)

Lien Laws & Out-of-State Construction Projects (Part IV)

In this fourth installment in my series of pitfalls in embarking on construction jobs in states in which you have not previously worked, we’ll consider differences between various state laws regarding transfer bonds and sworn statements of account. First, the transfer bonds.

In some states, liens may be removed from property by filing a transfer bond but these laws vary significantly from state to state. In Connecticut, any interested party may substitute a bond in lieu of the lien only after obtaining court approval.  The court will decide the good faith intent of the interested party to contest the lien and the sufficiency of the surety bond before the bond may be substituted for the lien. In contrast, other states allow an owner to transfer a lien to a bond as a matter of course without the court’s approval.

 

The deadlines by which to sue on transfer bonds also vary. Some states have deadlines as short as 90 days, while others allow one year from the last day of work on the project.

 

Most states permit an interested party to transfer a lien to a bond at any time, while some states preclude such a transfer once a foreclosure action has been filed. In Oklahoma, any interested party can discharge a lien by depositing either cash or a surety bond in an amount equal to 125% of the lien. If cash is deposited, the clerk will immediately show that the lien is released. In the case of a bond, however, the lienor may object to the bond within ten days, which would require a court hearing on the validity of the objections.  

 

Each state also has its own formula to determine the required bond amount to transfer liens.

Next, we address sworn statements of account. Some states have specific provisions regarding the exchange of written sworn statements of a project’s accounting. In Arkansas, a claimant may be fined up to $2,500 if:

 

           Upon request, it fails within five business days to give a correct list of the parties furnishing materials, labor or services and the amount due, or

 

           It falsely certifies that the owner or its agent has received the preliminary notice under the lien law.

 

In many states, including Florida, failure to respond to a request for a sworn statement of account within a specified time period will result in a complete loss of lien rights. In Michigan, the failure to provide a sworn statement does not render a lien invalid; however, the lienor is not entitled to any payment and may not sue to enforce the lien until the sworn statement has been provided.

Submitting a false sworn statement may result in criminal liability in many states. Requests for sworn statements of account are regularly used on projects throughout the country, so you should understand the statutory procedures governing them before your company begins work in an unfamiliar state.

 

We will conclude this series with my next post, in which we’ll discuss differences in state laws regarding fraudulent liens and some miscellaneous lien law provisions.

Lee Weintraub

Lee Weintraub

lweintraub@bplegal.com

At age 46, Lee Weintraub was the youngest recipient ever of the Lifetime Achievement Award from the Florida Bar’s Construction Law Committee. Mr. Weintraub is also an adjunct professor of law at Nova Southeastern University Shepard Broad College of Law teaching construction law. Mr. Weintraub has been recognized by Chambers USA – America’s Leading Business Lawyers every year since 2003. Chambers USA noted he focuses on licensing and construction defect litigation, but is particularly renowned for his expertise in the Construction Lien Law. He was also selected in the The Best Lawyers in America© every year from 2006 through 2018.

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