Category Archives: Lien

QUICK NOTE: PERFECTING & PRESERVING CONSTRUCTION LIEN & PAYMENT BOND RIGHTS

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imagesYou are a subcontractor, sub-subcontractor, or supplier on a construction project.  What steps can you take to maximize your ability to collect payment?  

 

 

  1. Read this chart to understand what steps you need to undertake to preserve and perfect construction lien or payment bond rights. This chart will assist you with what notices you may need to serve to preserve your lien or payment bond rights and the timing to do so.  
  2.  Read this article that has tidbits to maximize payment on a private construction project.  This article will be beneficial for any subcontractor, sub-subcontractor, or supplier that performs work on a private construction project. 
  3. Take a look at the below presentation.  This is a presentation I put on with a notice company that summarizes steps you can implement to preserve your rights and increase your chances to timely collect payment.
  4. Please consult a construction attorney so that you can be proactive and not necessarily reactive when it comes to perfecting and preserving your rights.

 

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/06/FL-Mechanics-Liens-Roofers-DMA.pptx”]

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: FILING THE “SHOW CAUSE” COMPLAINT REGARDING A CONSTRUCTION LIEN

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imagesI have talked about your options when there is a construction lien on your property.  One option discussed is the “show cause” complaint pursuant to Florida Statute s. 713.21(4) where you sue the construction lienor giving them 20 days to show cause why its lien should not be enforced or vacated and cancelled. If the lienor fails to show cause within the 20 days by filing its construction lien foreclosure lawsuit within this time frame, the court must order cancellation of the lien. See Ruffolo v. Parish & Bowman, Inc., 966 So.2d 434, 436 (Fla. 1st DCA 2007) (“When a property owner invokes section 713.21(4), a lienor must strictly comply with section 713.21(4) in order to preserve its lien, and a trial court is without discretion to deviate from the statutorily specified time limits.”); Dracon Const. Inc. v. Facility Const. Management, Inc., 828 So.2d 1069 (Fla. 4th DCA 2002) (filing a motion for an extension of time to assert lien foreclosure lawsuit is not good cause warranting the court’s cancellation of the subcontractor’s lien.)

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

THERE DOES NOT HAVE TO BE A PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES IN CONSTRUCTION LIEN DISPUTE

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Just because you are suing to foreclose your construction lien does NOT mean you will automatically recover your attorney’s fees as the prevailing party.   There does NOT have to be a prevailing party for purposes of recovering attorney’s fees.  This means a court or arbitrator could rule that neither party was the prevailing party for purposes of attorney’s fees; thus, neither party can recover their attorney’s fees from the other (or presumed losing) party.  This is an important consideration because it is impossible to predict on the frontend whether a court or arbitrator will deem you the prevailing party for purposes of recovering your attorney’s fees. This is because a court or arbitrator is to employ the significant issues test to determine which party prevailed on the significant issues to be deemed the prevailing party; and, again, a court or arbitrator could find neither party prevailed on the significant issues, hence there is no prevailing party.

 

This issue was clarified the hard way in Wells v. Halmac Development, Inc., 41 Fla.L.Weekly D924a (Fla. 3d DCA 2016) when an arbitrator ruled that neither party was the prevailing party for purposes of awarding attorney’s fees.  (Check here for a history of this dispute.) The attorney’s fees incurred in the arbitration were probably significant so a party believed it should have been declared the prevailing party for purposes of attorney’s fees and continued to fight this issue in court when the arbitration award was trying to be confirmed and enforced.  The fight turned acrimonious–there were motions for sanctions served and two appeals. 

 

Of applicability here, one of the appeals dealt with whether the trial court should have granted attorney’s fees pursuant to a motion for sanctions due to the opposing party continuing to try to declare itself as the prevailing party after (a) the arbitrator determined there would be no prevailing party and (b) the arbitrator’s determination corresponded with the law.  The Third District held that the motion for sanctions should have been granted awarding the party attorney’s fees because the continuous fight to be declared the prevailing party was not colorable under the law—the law was clear that there did NOT have to be a prevailing party for purposes of attorney’s fees in a construction lien action.  On this point, the Third District stated:

 

In fact, at the time Castro filed his motion requesting the trial court to declare him the prevailing party, the Florida Supreme Court had already weighed in on this issue and had explicitly “reject[ed] the notion that in every construction lien case the trial court is compelled to find a prevailing party.” Trytek, 3 So. 3d at 1204 n. 13. The Trytek court further emphasized that there might not always be a “prevailing party” in these types of suits and held that “the possibility that neither party is a ‘prevailing party’ is consistent with an application of the ‘significant issues’ test of Moritz and .” Id. at 1203. Most notably for our analysis, Trytek made it clear that Hollub and similar cases should not be read to mean that a prevailing party must be declared in a construction lien action:

We do not construe any of the appellate cases concerning prevailing party attorneys’ fees to mandate that there be a prevailing party, only that where a “prevailing party” is determined, the entitlement to attorneys’ fees is mandatory. See Pennington & Assocs., Inc. v. Evans, 932 So.2d 1253, 1254 (Fla. 5th DCA 2006); Hollub Constr. Co. v. Narula, 704 So.2d 689, 690 (Fla. 3d DCA 1997); Grant v. Wester, 679 So.2d 1301, 1308 (Fla. 1st DCA 1996); Sanfilippo v. Larry Giacin Tile Co., 390 So.2d 413, 414 (Fla. 4th DCA 1980). We reject the notion that in every construction lien case the trial court is compelled to find a prevailing party. See Kenmark Constr., Inc. v. Cronin, 765 So.2d 129 (Fla. 2d DCA 2000) (declining to announce a bright-line rule that a trial court must find a prevailing party in every construction lien action).

Id. at 1204 n. 13.

The Trytek decision — issued in 2009 — represented the settled law in Florida well before the arbitration proceedings in this case, and the arbitrator specifically relied upon and cited to Trytek in its determination that “there is no prevailing party for the purposes of an award of attorney’s fees.” Therefore, Castro’s counsel knew or should have known that any claim that Castro was entitled to be declared the prevailing party, after the arbitrator clearly determined there was no prevailing party, “[w]ould not be supported by the application of then-existing law to those material facts.” § 57.105(1)(b), Fla. Stat. (2012). This court has already and necessarily made this very determination when we held (in the prior appeal) that the trial court had no legal basis upon which to overturn the arbitrator’s determination (that there was no prevailing party) and to declare that Castro was the prevailing party.

Wells, supra. 

 

If you extract anything from this case, it is that a court or arbitrator does NOT have to deem a party the prevailing party in a construction lien case. The court or arbitrator will do this by finding that neither party prevailed on the significant issues of the case (as determined by the court or arbitrator).  As such, neither party is the prevailing party and neither party is entitled to attorney’s fees from the opposing party.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

THERE IS VALUE RECORDING A NOTICE OF CONTEST OF LIEN

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If you receive a construction lien on your property, I have preached the value in recording a Notice of Contest of Lien to shorten the lienor’s statute of limitations to foreclose on the lien from 1 year to 60 days.  If the unwary lienor fails to foreclose its lien within the shortened 60-day window, its lien is extinguished under the law. Ouch! (Check out this article and this article for more on Notice of Contest of Liens.)

 

Now, what if a lienor timely forecloses its lien and during the lien foreclosure lawsuit the lien is transferred from the real property to a lien transfer bond.  Typically, if a lien foreclosure lawsuit is underway and the lien is transferred to a lien transfer bond, the lienor has one year from the date of the transfer to amend its lawsuit to sue the lien transfer bond.   Could the owner record a Notice of Contest of Lien to shorten the lienor’s statute of limitations to amend its lawsuit from one year from the date of the transfer to 60 days?

 

In a recent case, the Second District held that an owner could record a Notice of Contest of Lien AFTER the lienor filed its lien foreclosure lawsuit to shorten to limitations period for the lienor to amend its lawsuit to sue the lien transfer bond to 60 days.   In this case, because the lienor failed to amend its lawsuit within 60 days, the Second District held that the lienor lost its right to sue the lien transfer bond.  This means the lienor no longer gets to foreclose its lien (against the real property or the lien transfer bond) all because a Notice of Contest of Lien was recorded after the lien foreclosure lawsuit was filed and after the lien was transferred to the bond.  This case serves as a huge “W” for owners that appreciate the value of the Notice of Contest of Lien! See Hiller v. Phoenix Associates of South Florida, Inc., 41 Fla.L.Weekly D881d (Fla. 2d DCA 2016) (“It is undisputed Phoenix [lienor] took no action in this case within sixty days after Hiller [owner] transferred the lien to a bond and served the notice of contest.  It is this failure on the part of Phoenix that compels reversal in this case.  The fact that Phoenix had a proceeding pending against the lien at the same time of the transfer did not excuse compliance with the other provisions of Chapter 713 [Lien Law]).”)

 

Remember, there is oftentimes a strategic value recording a Notice of Contest of Lien  if you are dealing with a construction lien.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

WHAT TO DO IF THE PAYMENT BOND IS NOT RECORDED WITH THE NOTICE OF COMMENCEMENT

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There is an unconditional payment bond for the project but it was not recorded with the Notice of Commencement.  Now there are subcontractor construction liens recorded against the property.  What do I do?  I thought the point of the payment bond was to exempt the real property from subcontractor and supplier liens.

 

No need to worry!  Liens can be transferred to the payment bond even though the payment bond was not recorded with the Notice of Commencement.

 

The payment bond operates to “secure every lien under the direct contract accruing subsequent to its execution and delivery.”  Fla.Stat. s. 713.23(2).  Even though the payment bond was not recorded with the Notice of Commencement as required, the owner or contractor can record a Notice of Bond with a copy of the payment bond that will operate to transfer the lien to the security of the payment bond. 

 

To this point, Florida Statute s. 713.13(1)(e) states in relevant part:

 

[I]f a payment bond under s. 713.23 exists but was not attached at the time of recordation of the notice of commencement, the bond may be used to transfer any recorded lien of a lienor except that of the contractor by the recordation and service of a notice of bond pursuant to s. 713.23(2). The notice requirements of s. 713.23 apply to any claim against the bond; however, the time limits for serving any required notices shall, at the option of the lienor, be calculated from the dates specified in s. 713.23 or the date the notice of bond is served on the lienor.

Stated differently, just because the payment bond was not recorded with the Notice of Commencement does not mean the payment bond is worthless.  Rather, it can still be used to transfer construction liens to the security of the bond. 

Further, if discovered early enough, and within the effective period of the Notice of Commencement,  an Amended Notice of Commencement can be recorded which attaches a copy of the payment bond.  The Amended Notice of Commencement needs to be served by the owner “upon the contractor and each lienor who serves notice before or within 30 days after the date the amended notice is recorded.”  Fla.Stat. s. 713.13(5)(b). But, the Amended Notice of Commencement can be used to clarify the omission of the payment bond in the original Notice of Commencement.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

WHAT IS A FRAUDULENT LIEN?

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What is a fraudulent lien? 

 

Just because a construction lien is recorded does not mean the lien is a fraudulent lien.  In fact, getting a lien declared a fraudulent lien is not an easy feat.

 

A fraudulent lien is defined in Florida’s Lien Law.  Florida Statute s. 713.31(2)(a) states:

 

“Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”

 

But, “a minor mistake or error in a claim of lien, or a good faith dispute as to the amount due does not constitute a willful exaggeration that operates to defeat an otherwise valid lien.” Fla. Stat. s. 713.31(2)(b).

 

So, a lien that (a) willfully exaggerates the amount, (b) willfully includes work not performed or materials not furnished, or is (c) compiled with willful and gross negligence, constitutes a fraudulent lien.   But, a minor mistake in a lien does not constitute willful exaggeration to constitute a fraudulent lien. And, a good faith dispute as to what a lienor claims it is owed does not constitute willful exaggeration to constitute a fraudulent lien.

 

What is the recourse if a fraudulent lien is recorded?

 

Florida Statute s. 713.31(2)(b) explains:

 

“It is a complete defense to any action to enforce a lien under this part, or against any lien in any action in which the validity of the lien is an issue, that the lien is a fraudulent lien; and the court so finding is empowered to and shall declare the lien unenforceable, and the lienor thereupon forfeits his or her right to any lien on the property upon which he or she sought to impress such fraudulent lien.”

 

So, if a fraudulent lien is declared, the lienor loses its lien—the lien becomes unenforceable. 

 

Plus, with respect to an action for damages, s. 713.31(2)(c) states:

 

“An owner against whose interest in real property a fraudulent lien is filed, or any contractor, subcontractor, or sub-subcontractor who suffers damages as a result of the filing of the fraudulent lien, shall have a right of action for damages occasioned thereby. The action may be instituted independently of any other action, or in connection with a summons to show cause under s. 713.21, or as a counterclaim or cross-claim to any action to enforce or to determine the validity of the lien. The prevailing party in an action under this paragraph may recover reasonable attorney’s fees and costs. If the lienor who files a fraudulent lien is not the prevailing party, the lienor shall be liable to the owner or the defrauded party who prevails in an action under this subsection in damages, which shall include court costs, clerk’s fees, a reasonable attorney’s fee and costs for services in securing the discharge of the lien, the amount of any premium for a bond given to obtain the discharge of the lien, interest on any money deposited for the purpose of discharging the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due or to become due and the amount actually due or to become due.”

 

So, in addition to the fraudulent lien being declared unenforceable, the lienor can be liable for damages including, without limitation, attorneys’ fees, court costs, and, potentially, punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due and the amount actually due.

 

What does this mean?

 

It is important for lienors  to consult with counsel prior to preparing and recording a lien since a routine defense to a lien is that the lien is an unenforceable fraudulent lien.

 

Here are important tidbits regarding fraudulent liens:

 

 

  • Including amounts in the lien NOT authorized by contract can render the lien fraudulent. See Skidmore, Owings, and Merrill v. Volpe Const. Co., Inc., 511 So.2d 642, 644 (Fla. 3d DCA 1987) (“The inclusion of items not authorized by change orders or by contract renders the lien fraudulent and unenforceable.”); accord In re Hayes, 305 B.R. 361, 366-67 (M.D.Fla. 2003).   For instance, think disputed change order requests.  Sometimes, it is better to pursue these amounts in a breach of contract action so as not to risk the lien being declared fraudulent.  But see In re American Fabricators, 917 B.R. 987, 992 (M.D.Fla. 1996): “The test for determining whether extras [changes] are lienable under Florida’s mechanics’ lien law is whether work was performed (i) in good faith; (ii) within a reasonable time; (iii) pursuant to the terms of the contract; and (iv) is necessary to finish the job.”

 

  • Consulting with counsel including full and complete disclosure of pertinent facts regarding the lien will help establish that there is a good faith dispute as to the amount in the lien and, therefore, there is no willful exaggeration to support a fraudulent lien.   As one appellate court explained “[A] lienor can rely on consultation with counsel prior to filing the claim of lien as evidence of good faith only in the event of a full and complete disclosure of the pertinent facts to the attorney from whom the advice is sought before the lienor acts on the advice. Consultation with an attorney is not entitled to any legal weight if the contractor did not disclose all pertinent facts to the attorney.”  Check out this article for more information on the value of consulting with counsel.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

 

CHARTS AND GRAPHICS SUMMARIZING PAYMENT BOND AND CONSTRUCTION LIEN RIGHTS

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As they say, a picture is worth a 1,000 words.  How about charts and graphics?

Check out this chart that summarizes preserving and enforcing construction lien and payment bond rights in Florida.

Check out this chart that summarizes Miller Act payment bond rights in comparison to Florida private and public payment bond rights.

 

Check out this graphic that depicts Miller Act payment bond claimants.

And, finally, check out this graphic that depicts those entities entitled to construction liens and payment bond rights under Florida law.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

RESIDENTIAL CONSTRUCTION – SHOULD BOTH HUSBAND & WIFE SIGN THE CONTRACT?

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It is always good practice for residential contractors to get both husband and wife to sign the residential construction contract.   But, even if only one spouse signs the contract, Florida’s Lien Law doesn’t really punish the contractor when its comes to construction liens.

 

Florida Statute s. 713.12 provides:

 

When the contract for improving real property is made with a husband or wife who is not separated and living apart from his or her spouse and the property is owned by the other or by both, the spouse who contracts shall be deemed to be the agent of the other to the extent of subjecting the right, title, or interest of the other in said property to liens under this part unless such other shall, within 10 days after learning of such contract, give the contractor and record in the clerk’s office, notice of his or her objection thereto.

 

In other words, one spouse is deemed the agent of the other spouse when it comes to subjecting the other to construction liens.  This makes sense because generally when one spouse signs a contract for construction at his/her property, the other spouse has knowledge and is on board of the construction project.   But, assuming the other spouse wasn’t aware, Florida’s Lien Law allows that spouse to provide the contractor an objection to the contract and record that objection in the public records in order for any construction lien not to impact that spouse’s interest in the property.

 

However, the statute only applies to real property and doesn’t apply to personal liability relating to the non-signing spouse.  See Mullne v. Sea-Tech Const. Inc., 84 So.3d 1247, 1249 (Fla. 4th DCA 2012); Meadows Southern Const. Co. v. Pezzaniti, 108 So.2d 499, 502 (Fla. 2d DCA 1959).  This is why it is good practice for the contractor to get both spouses so sign the contract because while the contractor may be able to lien the non-signing spouse’s interest, that will be about it because it will not be able to impose personal liability against the non-signing spouse.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

OWNER REQUESTING PROGRESS PAYMENT AFFIDAVITS FROM CONTRACTOR

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Florida’s Lien Law provides an owner, in particular, an infrequently used tool to take advantage of before making a progress payment to a contractor.

Previously, I talked about a contractor’s requirement to furnish the owner with a final payment affidavit before foreclosing on its construction lien.

 

But, an owner can request for a contractor to serve a progress payment affidavit before making a progress payment to a contractor.  The owner, however, seldom requests this progress payment affidavit before making a progress payment.

 

Florida Statute s. 713.06(3)(c) provides:

 

(c) When any payment becomes due to the contractor on the direct contract, except the final payment:

1. The owner shall pay or cause to be paid, within the limitations imposed by subparagraph 2., the sum then due to each lienor giving notice prior to the time of the payment. The owner may require, and, in such event, the contractor shall furnish as a prerequisite to requiring payment to himself or herself, an affidavit as prescribed in subparagraph (d)1., on any payment made, or to be made, on a direct contract, but the furnishing of the affidavit shall not relieve the owner of his or her responsibility to pay or cause to be paid all lienors giving notice. The owner shall be under no obligation to any lienor, except laborers, from whom he or she has not received a notice to owner at the time of making a payment.

2. When the payment due is insufficient to pay all bills of lienors giving notice, the owner shall prorate the amount then due under the direct contract among the lienors giving notice pro rata in the manner prescribed in subsection (4). Lienors receiving money shall execute partial releases, as provided in s. 713.20(2), to the extent of the payment received.

3. If any affidavit permitted hereunder recites any outstanding bills for labor, services, or materials, the owner may pay the bills in full direct to the person or firm to which they are due if the balance due on the direct contract at the time the affidavit is given is sufficient to pay the bills and shall deduct the amounts so paid from the balance of payment due the contractor. This subparagraph shall not create any obligation of the owner to pay any person who is not a lienor giving notice.

4. No person furnishing labor or material, or both, who is required to serve a notice under paragraph (2)(a) and who did not serve the notice and whose time for service has expired shall be entitled to be paid by the owner because he or she is listed in an affidavit furnished by the contractor under subparagraph (c)1.

 

One reason an owner should want to comply with these provisions in Florida’s Lien Law and request a progress payment affidavit is to safeguard what is known as the proper payments defense.  Under the proper payments defense, an owner will not be liable for construction liens that exceed the owner’s contract price with its contractor.  See Continental Concrete, Inc. v. Lakes at La Paz III Ltd. Partnership, 758 So.2d 1214 (Fla. 4th DCA 2014) (“The [proper] payment defense provides that where an owner fulfills all the duties the Mechanics’ Lien Law places upon him, his liability for all mechanics’ lien claims cannot exceed the contract price.”) (internal citation omitted).  But, for the proper payments defense to apply, an owner is required to comply with the requirements of Florida’s Lien Law. An owner makes proper payments by obtaining progress payment affidavits in consideration of each progress payment made to the contractor (and a final payment affidavit in consideration of the final payment) and by getting progress / partial lien wavers and releases from the contractor and subcontractors and suppliers that preserved their lien rights (and a final lien waiver / release in consideration of final payment).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.