The Basics of Construction Liens in Nebraska and Iowa
Construction liens, sometimes called mechanic’s liens, are useful tools to help enforce payment for labor and materials provided to improve real estate in Nebraska and Iowa. However, construction liens do not arise automatically, and the provider of labor or materials under a construction contract must take steps to ensure that lien rights are protected. This article will address the basics of Nebraska and Iowa law governing construction liens.
When liens are allowed. Generally, both Nebraska and Iowa allow construction liens to be filed when an agreement exists for labor or materials to be furnished for the purpose of improving or producing a change in real property.
In Nebraska, labor and materials include the preparation of plans, surveys, and drawings for any change or improvement to real property, whether or not such plans, surveys, or drawings are actually used. Nebraska also includes the value of materials consumed in the construction of an improvement in the value of the lien in most circumstances. The definition of “materials” includes the renting or purchase of tools and machinery, but only if the rental or purchase is for the property at issue and, if purchased, the tools or machinery have no substantial value to the purchaser after completion of the project. A lien is not allowed in Nebraska for subcontractors, however, if the owner or general contractor secures a bond and records notice of the surety. In such cases, a subcontractor wishing to assert lien-like rights must sue within one year of providing labor or materials, or within 90 days if there is no direct contract with the general contractor. In bond/surety cases, a subcontractor who would otherwise be able to assert a lien may sue the surety directly, and does not need to name the general contractor as a defendant. In Iowa, a contractor may not assert a lien if the contractor accepted collateral security at the time of contracting. A contractor may assert a lien, however, if the taking of security occurs after the completion of the contractor’s work, unless the parties expressly agree otherwise.
Lien Amount. In Nebraska and Iowa, as a very broad generalization and subject to certain exceptions, a contractor’s lien is for the unpaid part of his or her contract price.
In Nebraska, the lien of a general contractor is reduced by the sum of the liens of claimants who claim through him or her, such as subcontractors and/or vendors.
In Iowa, owners have an incentive not to pay a general contractor until: (a) 90 days have passed since the last materials were provided or labor was performed; (b) the general contractor provides receipts and waivers of claims for mechanics’ liens, signed by all persons who furnished material or performed labor for the improvement; or (c) the general contractor provides a bond to be approved by the owner, conditioned that the owner shall be held harmless from any loss which the owner may sustain by reason of the posting of mechanics’ liens by subcontractors. This is because subcontractors have a 90 day window in which to assert mechanic’s liens against owners, and they can, in certain circumstances, enforce such rights even after the owner has paid the general contractor in full.
Deadline to Record Liens. In Nebraska, a contractor must record a lien within 120 days from the date the contractor last furnished services or materials. A properly recorded lien is enforceable for two years, unless the owner or other person having an interest in the property makes a written demand upon the contractor to institute judicial proceedings on the lien, in which case the contractor has 30 days to enforce the lien. Once a lien is recorded, the contractor must send a copy of the lien to the property owner within 10 days.
In Iowa, contractors must record their lien and verified statement of account within 90 days from the date on which the last of the materials was furnished or the last of the labor was performed. After 90 days, a subcontractor may still file the lien and verified statement of account, but the subcontractor will be limited to recovering the balance due from the owner to the general contractor at the time of service unless a bond is in place. Like Nebraska, Iowa allows the lien to be enforced for two years—calculated from the expiration of the 90 day period in which to file the lien—and similarly requires the lien to be enforced within 30 days of a demand by the owner.
In Iowa, general contractors working on residential projects must post a notice of commencement and provide a notice to owners within 10 days of commencing work or their lien rights are lost. Subcontractors working on residential projects must post a preliminary notice and provide notice to owners before the owner pays the general contractor in full or the subcontractor’s lien rights are lost.
Where to record or file a lien. In Nebraska, liens are recorded with the Register of Deeds for the county in which the property is located. In Iowa, lien documents are not recorded with the Register of Deeds of any particular county. Rather, Iowa has established an online database for filing lien related documents called the Mechanic’s Notice and Lien Registry (the “MNLR”). All lien related documents must be filed on the MNLR for the lien to be valid.
Contents of lien. Nebraska requires that a lien clearly identify: (a) the property subject to the lien; (b) the name of the person against whom the lien is claimed; (c) the name and address of the contractor asserting the lien; (d) the name and address of the person with whom the contractor contracted; (e) a description of the services performed or materials furnished and the contract price; (f) the unpaid amount; and (g) the date the last services or materials were furnished.
Iowa requires liens to include: (a) the name of the person by whom posted; (b) the date and hour of posting; (c) the amount thereof; (d) the name of the person against whom the lien is posted; (e) the legal description of the property to be charged; (f) the tax parcel identification number of the property to be charged; and (g) the address of the property or a description of the location of the property if the property cannot be reasonably identified by an address.
Further, in Iowa, the following additional information must be included in a lien posted to the MNLR for commercial property: (a) the name and mailing address of the owner; (b) the name, address and telephone number of the general contractor; (c) the county in which the improvement to be charged with the lien is found; and (d) the e-mail address of the person posting or submitting the mechanic’s lien.
Finally, in Iowa, a person perfects a mechanic’s lien by posting to the MNLR internet site a verified statement of account of the demand due the person, after allowing all credits, setting forth: (a) the date when such material was first furnished or labor first performed, and the date on which the last of the material was furnished or the last of the labor was performed; (b) the legal description that adequately describes the property to be charged with the lien; (c) the name and last known mailing address of the owner; (d) the address of the property or a description of the location of the property if the property cannot be reasonably identified by an address; and (e) the tax parcel identification number.
Priority of liens. Generally, in Nebraska, in relation to other liens of the same type on the same property, the date of attachment governs priority. Attachment occurs when the following two requirements are both met (1) a contract for provision of labor or services has been entered into, and (2) the lien has been recorded within 120 days of the last of the labor or materials being provided. If a notice of commencement has been recorded, the lien attaches as of the date of the recording of the notice of commencement. In Iowa, the time of filing of the verified statement of account dictates priority. Both states have fairly complex rules regarding the priority or lack of priority of liens over other types of encumbrances against property. Beyond these general rules, the priority rules of each state are beyond the scope of this article.
Waiver and assignment. Both Nebraska and Iowa allow contractors to waive or assign their lien rights.
Enforcement of lien. In Nebraska and Iowa liens are enforced through a civil lawsuit. The lawsuit should be filed in the county in which the property is located.
Discharge or release of lien. In Nebraska, liens can be discharged at any time by the contractor who asserted the lien by filing a release with the Register of Deeds. Liens may also be released if a judgment of record is entered releasing the lien or if a notice is filed showing that an appropriate deposit has been made to substitute for the lien. In Iowa, a lien may be released by a bond, by the payment of the claim, or by the failure of the claimant to bring suit to enforce the lien within thirty days of written demand.
Nebraska also allows anyone having an interest in the subject real estate to release the real estate from liens by depositing money with the District Court Clerk’s Office in the amount of 115% of said liens; the person must also record a notice of the deposit with the Register of Deeds Office.
Also, like Nebraska, Iowa allows liens to be discharged by the depositing of a bond, but Iowa requires the bond amount to be 200% of the lien amount. In a court action to enforce a mechanic’s lien, a prevailing plaintiff may be awarded reasonable attorney fees.
Summary. This article is meant to provide a general understanding of lien rights. There are many nuances to the filing of liens, and Iowa and Nebraska punish misconduct associated with lien filing. Therefore, it may be beneficial to consult an attorney if you need to file a lien or if a lien is filed against your property.
by J. Daniel Weidner and John V. Matson