Tag Archives: claim of lien

DON’T IGNORE A NOTICE OF CONTEST OF LIEN

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A recent case, Jon M. Hall Company, LLC v. Canoe Creek Investments, LLC, 49 Fla.L.Weekly D812a (Fla. 2d DCA 2024), demonstrates four important things when it comes to liens:

  1. An owner can shorten the time period to foreclose on the lien, whether against the real property or a lien transfer bond, to 60 days by recording a notice of contest of lien;
  2. An owner can transfer a lien to a lien transfer bond during litigation;
  3. An owner can record a notice of contest of lien to force the lienor to amend its lawsuit to sue the lien transfer bond surety within 60 days; and
  4. A contractors’ failure to amend its lawsuit to sue the lien transfer bond within 60 days will extinguish its rights to pursue a claim against the lien transfer bond, and will otherwise extinguish the lien, fairly or unfairly.

Here are the key facts in Jon M. Hall Company:

  • 4/14/22 – Contractor recorded claim of lien for $825,639.46
  • 5/17/22 – Owner transferred Contractor’s claim of lien to a lien transfer bond
  • 5/20/22 – Owner recorded a notice of contest of Contractor’s claim of lien
  • Late May 2022 – Contractor recorded amended claim of lien for $1,837,516.76
  • 6/14/22 – Contractor filed lawsuit against Owner including a lien foreclosure as to its amended claim of lien. Contractor did not sure the lien transfer bond surety
  • 7/1/22 – Owner transferred Contractor’s amended claim of lien to a lien transfer bond
  • 7/1/22 – Owner recorded a notice of contest of Contractor’s amended claim of lien
  • Contractor did not amend its lien foreclosure lawsuit to sue the lien transfer bond within 60 days
  • 12/19/22 – Owner moved for partial summary judgment on Contractor’s lien foreclosure lawsuit. “[Owner] asserted that transferring to bond and recorded notices of contest as to both [Contractor’s] Original Claim of Lien and Amended Claim of Lien had shortened the time for [Contractor] to bring action against the bond. [Contractor] had failed to timely do so, thereby resulting in automatic extinguishment of the lien as a matter of law.”
  • Trial court granted Owner’s motion for partial summary judgment holding that “[Owner’s] transfer and recording of the notice of context as to the Amended Claim of Lien during the litigation shortened the time for [Contractor] to bring a claim against the bond to sixty days, and [Contractor’s] failure to timely do so extinguished its lien automatically as a matter of law.”

The Contractor moved for a petition for a writ of certiorari to quash the trial court’s order that held its lien was extinguished as a matter of law.

A lienor has one year under Florida Statute Section 713.22 to foreclose on a claim of lien. This time period may be shortened to 60 days by an owner recording a notice of context of lien under Florida Statute Section 713.24.  The notice of contest statute provides, “[t]he lien of any lienor upon whom such notice is served and who fails to institute a suit to enforce his or her lien within 60 days after service of such notice shall be extinguished automatically.”

Separately, under Florida Statute 713.24, a lien against real property can be transferred to the security of a lien transfer bond which removes the collateral of the lien from the real property to the lien transfer bond.

Construing Florida Statutes 713.22 and 713.24 together, “under the plain statutory language, where a lien is transferred to a bond during litigation, and the owner records a notice of contest, the lienor has “60 days” “within which to commence an action to enforce any claim of lien or claim against a bond,” or else the “lien . . . shall be extinguished automatically.” Jon M. Hall Company, supra (internal citations omitted).

Here, it is true that [Contractor’s] Original Claim of Lien was recorded, transferred, and noticed for contest before the litigation commenced. However, before the June 2022 lawsuit, [Contractor] also recorded an Amended Claim of Lien, more than doubling the amount claimed. [Contractor] thereafter filed its complaint, expressly acknowledging and seeking to recover on the higher Amended Claim of Lien. Two weeks later, [Owner] transferred the Amended Claim of Lien to the bond and recorded its notice of contest thereof, just as it had with the original one.

Thus, after [Contractor] commenced litigation on its Amended Claim of Lien, [Owner’s] actions in transferring the Amended Claim of Lien to bond under section 713.24 and then recording its notice of contest of the Amended Claim of Lien under section 713.22(2) operated to shorten the time period for [Contractor] to bring an action against the surety on the bond to sixty days. 

***

On that question, the statutory language is quite clear: after [Contractor] “commenced” this “proceeding to enforce a lien” expressly seeking to recover on its Amended Claim of Lien, “during such proceeding, the lien [wa]s transferred” by Owner.  When [Owner], as the owner of the property, recorded its notice of contest of the transferred Amended Claim of Lien, that “shorten[ed] the time . . . within which to commence an action to enforce any claim of lien or claim against a bond or other security.”  Contractors failure to seek to claim against the bond within sixty days thereafter caused its lien to “be extinguished automatically” by operation of law. 

***

[Contractor] also asserts that both of [Owner’s] notices of contest of lien were invalid because they were recorded after [Owner] had already transferred the claims of lien to bond. But [Contractor] has not cited, nor have we found, any support for this claim. Indeed, the only case Hall cites for this proposition involved the same order of events, without suggesting there was anything improper about it. 

Jon M. Hall Company, supra (internal citations omitted).

Look, when it comes to claims of lien, do yourself a favor.  Use a construction lawyer.  Use a lawyer that understands liens, and importantly, Florida’s Lien Law.  I cannot emphasize these points enough.  If you don’t, you can get caught with gotcha tactics or crazy nuances under Florida’s Lien Law.  I don’t necessary agree with the holding in this case.  Regardless, when receiving a notice of contest of lien, you need to respect the implications and make sure rights are immediately preserved.  Otherwise, you get caught in the scenario here where a lienor had a $1.8 Million lien extinguished. OUCH!!!

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.

MAKE SURE TO PROPERLY PERFECT AND PRESERVE CONSTRUCTION LIEN RIGHTS

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If you recording a construction lien (referred to as a claim of lien) and looking to perfect your construction lien foreclosure rights, it is imperative that you work with counsel to ensure your rights are properly preserved.  This is good practice!

A claim of lien must be served on an owner within 15 days after recording.   Florida Statute s. 713.08(4)(c) says: “The claim of lien shall be served on the owner. Failure to serve any claim of lien in the manner provided in s. 713.18 before recording or within 15 days after recording shall render the claim of lien voidable to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.”

Florida Statute s. 713.18, hyperlinked for your review, includes the statutory ways to serve “notices, claims of lien, affidavits, assignments, and other instruments permitted or required under [Florida Statutes Chapter 713].”

Furthermore, a contractor in privity with the owner must serve a Contractor’s Final Payment Affidavit per Florida Statute 713.06(3)(c) “at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien.”  The Contractor’s Final Payment Affidavit must also be served per s. 713.18.

The reason this is important is demonstrated in the Fourth District Court of Appeal’s opinion in Fettig’s Construction, Inc. v. Paradise Properties & Interiors LLC, 2020 WL 6479580 (Fla. 4th DCA 2020) that involved a petition for writ of certiorari to the appellate court after the trial court entered partial judgment in favor of an owner dismissing a claim of lien and lien foreclosure due to the contractor’s failure to property serve a claim of lien and Contractor’s Final Payment Affidavit on the owner.

Of importance, a trial court discharging a lien (or even lis pendens) will give rise to a basis for an appeal (petition for writ of certiorari) because it would permit an owner to immediately sell or transfer that asset—the real property— without the encumbrance of the lien which could NOT be remedied on a post-final judgment appeal.  See Fettig’s Construction, Inc. at *1.

Without getting into the nitty gritty of this case, the contractor served the lien on the owner per its addresses registered with the Secretary of State and property appraiser but not the address located in the notice of commencement.  The lien was returned undeliverable to the contractor.   The owner claimed that the contractor didn’t properly comply with the service requirements in s. 713.18.   While the trial court, somewhat surprisingly, bought this argument, the appellate court did not and reversed the judgment.   Moreover, the appellate court noted that even if the contractor did not properly serve the lien, s. 713.08 provides the lien would be voidable “to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.”  This, however, is a question of fact.

As to the Contractor’s Final Payment Affidavit, the contractor seemed to serve the Affidavit to the address in the notice of commencement, but it was returned undeliverable too.  The appellate court found this was acceptable if there was proof the non-delivery was not caused by the contractor, which would require an evidentiary to address “whether the failure of delivery was not the fault of Contractor.”  Fettig’s Construction, Inc., supra, at *4.

What does this all mean?  It means to follow the advice in the very first paragraph – work with counsel to ensure your rights regarding recording a construction lien, serving a construction lien, and preserving your rights to foreclose a construction lien are properly perfected and preserved.

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.