by Scott Wolfe, Jr, Wolfe Law Group
Reprinted from Construction Law Blog
Short Answer: Mechanic liens are effective against the real property (i.e. the land itself and its improvements) where the work is performed.
Long Answer: We actually get this question a lot, as many of our clients are filing a lien for the first time and don’t quite understand how it works. They wonder whether the lien is field against just certain parties on the project (i.e. the owner, the prime, etc.), or against the project as a whole.
While lien laws are different from state-to-state, they are at least consistent in that they are filed against the construction project’s property itself in every jurisdiction. This means that the lien encumbers the property, preventing it from being transferred, sold, refinanced, etc., and allowing you to file an action to “foreclose” on the lien. Foreclosing on the lien is similar to the foreclosure executed by a bank on a property.
The Lien is Against the Construction Project Property, and Not Any Other Property
All over the country, liens must be filed against the property where services or materials were furnished, and it is this specific property that is encumbered by the lien. If you’re unpaid on a construction project, you do not have the right to file a lien against any other parcel of property, including any proprety owned by the prime contractor or any additional property owned by the property owner.
The purpose of mechanic lien laws is to preserve the contractor or supplier’s right to get paid for the work they performed. When the product of their work is incorporated into someone else’s improvement, that improvement’s value is enriched by those services or supplies, and the law prevents the owner from being enriched to the detriment of any of the laborers or material men. However, the law goes no further, and doesn’t allow liens to be filed against unassociated property.
There’s no picking and choosing who is subject to a mechanic’s lien
You may have a terrific relationship with the prime contractor, knowing that your payment problem stems from a stingy property owner. Alternatively, you may have a great relationship with the property owner with all payment frustrations the result of a prime contractor’s misapplication or misappropriation of funds.
In these circumstances, folks sometimes want to file a mechanics lien, but only against certain parties – those at so-called fault. However, this is not workable with mechanic lien laws in any of the 50 states.
In short, a lien claimant cannot pick and choose who they want to file a mechanics lien against, and that’s because they aren’t really filing it against anyone. They are filing it against the property itself, and that grips all of the parties up the contracting chain from the lien claimant. While one party may be more guilty than another for non-payment, that will work itself out in the claims the non-guilty parties have against the guilty parties, but it has no bearing on your lien rights, which are against the property solely.
Your rights are in the property as a whole
Finally, many folks wonder if they can (or will) file a lien against the property as a whole, or just simply in the services or materials they furnished to the project.
Say, for instance, you furnished $50,000 of lumber to a construction project. If you are unpaid and file a lien, does your lien get filed against the lumber only, or against the entire project?
The answer – everywhere – is that your lien is filed against the entire project. The lumber itself has been “incorporated” into the property, and it is now one and the same with the improvement. Your lien will be against the improvement as a whole.
To the extent the materials have not been incorporated into the property (i.e. it has not been installed and is still piled up at your warehouse or factory), this may affect your right to lien at all. The idea behind lien laws is that you have the right to lien properties where your services or materials were incorporated. With limited exceptions (i.e. many states have exceptions for specially fabricated materials), if your materials are not incorporated into the property, you’re without rights.
You always have the right to file a lawsuit for breach of contract, but you may also have a UCC (Uniform Commercial Code) lien against the materials themselves. The tricky thing about this, however, is that once the materials are incorporated into the building or improvement, the UCC lien rights disappear. Read More.