Mastering Construction Liens: Strategies for Getting Paid (Part 1)
Here is the situation: you are a contractor who entered into a contract to construct a building, you have performed your scope of work but you have not been paid what you are owed. You filed a construction lien on the property, but how does that get you paid? In this two-part article series, we will explore the steps you need to take to provide you with the best chance of turning your lien into a payment.
The first item of discussion, and maybe most critical, is when the lien was filed in comparison to when the underlying work was performed. Just because a lien has been recorded does not mean it is enforceable. There are certain steps that must be followed to ensure it is valid and can be converted into payment.
A lien must be timely recorded to be enforceable. In Nebraska, a lien is considered timely if it has been recorded within 120 days from the last date that services or materials were furnished to the property. This is a firm deadline and not something to take a chance on because the consequences are unforgiving. A late filing means an unenforceable lien. If the deadline is fast approaching, a best practice would be to file the lien in person with the Register of Deeds in the county in which the lien property is located. While electronic filings are convenient, no promises can be made about how efficiently the lien will be recorded by the register of deeds, which may affect whether the lien was recorded timely.
Once the lien has been timely filed, it is valid for two years. This means that for two years after the lien was filed, it is enforceable, but after the two years have expired, the lien no longer encumbers the property and cannot be foreclosed. As a result, actions for payment must be commenced within this two-year enforceability timeline or you will no longer have the ability to foreclose your lien.
The party filing a lien is generally not required to provide notice of lien liability to the contracting owner of the property subject to a lien. However, specific notice is required to be given to “protected parties.” A protected party is essentially any residential property owner who has taken out a security interest on the real estate that is subject to the improvement contract. Further details of “protected parties” are contained in the Nebraska Construction Lien Act (Neb. Rev. Stat. § 52-129), but it is best to be aware of such notice requirements when working at a residential property.
If a notice to a protected party is delivered, it should contain the following information:
- The names and addresses of the claimant and opposing party;
- The name of the owner of the property subject to the lien;
- A general description of the services or materials provided or to be provided as well as of the property subject to the lien;
- An assertion that the claimant is entitled to record a lien;
- The amount unpaid under the real estate improvement contract or a good faith estimate if no amount was set pursuant to the contract; and
- The following statement: “Warning. If you did not contract with the person giving this notice, any future payments you make in connection with this project may subject you to double liability.”
The last step prior to pursuing payment is to gather all relevant documentation supporting the contract. Such documentation will likely include at least the following:
- The signed agreement that the lien is subject to (if it was put into writing);
- Invoices and proof of payments received; and
- Any pertinent communication logs or photographs that help tell the story of the contract.
This documentation, altogether, will help prove the lien and support the action for payment.
Conclusion and Next Steps
Once you have ensured your lien’s enforceability, provided notice if necessary, and gathered relevant documentation, you are ready to move on to the next course of business, pursuing payment. In part two of this article series, we will explore how contractors may use their lien to secure payment.
If you have any questions regarding construction liens and how you can be paid in connection with a construction lien, please do not hesitate to contact a member of Koley Jessen’s Construction Industry Practice group.
This content is made available for educational purposes only and to give you general information and a general understanding of the law, not to provide specific legal advice. By using this content, you understand there is no attorney-client relationship between you and the publisher. The content should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.