Contractors who have entered into an agreement to provide construction materials or services for the improvement or alteration of real estate may secure payment for those materials and services through the use of construction liens. To do so under Nebraska law, contractors must record their lien within 120 days from the date they last provided services or materials for the project. Once recorded, the lien attaches to the property and remains an encumbrance until the contractor is fully paid, provided the lien is foreclosed within two years of its recording.

If you are a contractor, you may be wondering: what if the property owner sells the property within the 120-day window to file, but before I record the lien?

Like you, property owners—sellers and purchasers alike—recognized this potential loophole, and prior to the decision in Nore Electric v. S&H Holdings, 316 Neb. 197 (2024), certain property owners began to take advantage of this legal gray area in order to reject contractors’ payment demands and challenge the enforceability of the liens recorded against the property.  However, a year ago, the Nebraska Supreme Court issued its pivotal ruling in Nore, which clarified the nature, scope, and priority or effect of construction liens under the Nebraska Construction Lien Act.

Background of the Case

S&H Holdings (“S&H”) owned property and entered into a project management agreement with Integrated Construction Management Services, Inc. (“ICMS”) to construct a Burger King on the property. Several contractors, including Nore Electric, provided services and materials for the project but were not paid by ICMS. S&H then transferred the property to Reality Income Properties in January of 2019. However, it was not until after the transfer of ownership that the contractors recorded construction liens. The main issue for the court to decide was whether the contractors’ liens had priority over the subsequent purchaser’s interest in the property.

The Court’s Decision

The Court concluded that under the Nebraska Construction Lien Act (“NCLA”), liens can attach to the contracting owner’s interest in the property even after a transfer of ownership. In reaching this conclusion, the Court emphasized that the statutory language of the NCLA supported the contractors’ right to attach liens to the property, regardless of ownership. Due to the contractors' legal right to perfect a lien within 120 days of supplying services or materials, the purchaser acquired the title to the property subject to construction liens that were subsequently recorded following the closing date.

What Does This Mean for Contractors?

This case demonstrates that if you are a contractor, it may not be too late to assert your rights and get paid, even after the property that received the benefit of the contractor’s service or materials has been sold. A lien creates leverage for a contractor to increase the chances that payment is made. Property owners who hire contractors may even be incentivized to promptly pay contractors if they are looking to sell, refinance, or mortgage their property. However, the case also demonstrates that property owners are developing creative ways to attempt to avoid paying contractors. If you are a contractor who has the right to perfect a lien, it is in your best interest to act expeditiously.

If you would like more information regarding the Nebraska Construction Lien Act, please do not hesitate to contact one of the members of Koley Jessen’s Construction Industry Practice Area.

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