Lien Laws & Out-of-State Construction Projects (Part V)
Today we conclude my series on differences in lien laws among the states you should consider when working in an unfamiliar state. We begin today with fraudulent liens.
Florida has a statute addressing fraudulent liens, defined as liens in which: (1) the lienor has willfully exaggerated the lien amount, (2) the lienor has willfully included a claim for work not performed upon the property; or (3) the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration.
Ramifications of fraudulent liens usually include voiding the lien and may include affirmative claims for damages against the lienor by the property owner. Some states make fraudulent liens a criminal violation, which may be grounds for disciplinary proceedings against the lienor’s construction license. Florida is an example of that.
Given the serious consequences of compiling a lien incorrectly, you should know the standards, ramifications, and defenses for fraudulent liens in each state where your company is working.
Although this series of blogs addressed some of the nation’s prevalent lien law provisions, many states include other provisions that could impact contractors. Some states have specific statutes regarding the use and misappropriation of construction funds and the ramifications of failing to pay subs and suppliers after a contractor receives payment from the owner.
Many states have specific statutory provisions addressing releases of lien and the manner in which they may be used. A number of states have statutory provisions permitting the owner to drastically shorten a lien foreclosure deadline before the lien automatically expires.
Provisions such as these could significantly impact your company’s rights and liabilities and they differ so much from state to state that you would probably be unaware of them unless you researched the state’s lien laws and related statutes before beginning construction in that jurisdiction.
Past experience in one state is almost never enough to protect your company’s lien rights in others. In fact, it may harm you to the extent you act in accordance with your state’s laws when they may be contrary to the foreign state’s laws. Before you sign any contract, you should investigate the applicable lien law. Also, understand all of the elements previously described, in addition to the following:
1) Types of Property Interests Subject to Liens: Most states exempt public projects from lien laws. Other projects may also be exempt or have limited lien rights (for example, construction performed for a tenant or work approved by one spouse when both own the property).
2) Multiple Liens When Working on Multiple Lots: If your company needs to lien a platted
subdivision project, do you record a single lien for the entire subdivision or must you record
separate liens for each lot? If the latter, then how do you determine the lien amount for each
lien you record?
3) Obligation to Disclose Information: Know if your company can be compelled to disclose its
subs and suppliers to clients and if your subs must make disclosures to your company.
4) Involvement of Construction Lenders: Understand the role construction lenders may play on
the project and how those roles impact the lien law. This is especially critical in the current
economy where mortgage foreclosures are wiping out junior liens. Find out what you can do
during the project to give you possible recourse against a lender at the end of the job.
5) Conditional Payment Bonds: Some states may authorize conditional payment bonds in
which the sureties will pay the lienors only if the bond principal (usually the GC) has been
paid for the lienor’s scope of work.
It all seems daunting, but with a little foresight and research, you can master out-of-state lien laws
and avoid unpleasant surprises at the end of the job.