CONSTRUCTION LIENS: LIENING FOR AMOUNTS NOT YET TECHNICALLY DUE DOES NOT MEAN LIEN IS FRAUDULENT

Posted on July 19, 2026July 19, 2026 by David Adelstein

A 2024 bankruptcy ruling, In re Edgewater Construction Group, Inc., 657 B.R. 668 (S.D.Fla. 2024), touched upon an interesting issue when it comes to construction liens. Is a construction lien fraudulent simply because the lien includes amounts not yet due? Not necessarily.

In this bankruptcy dispute, the subcontractor debtor (that filed for bankruptcy) recorded two construction liens on projects. The general contractor argued in the bankruptcy court that the subcontractor debtor’s liens were fraudulent.

As to the first lien, the general contractor argued that the lien was fraudulent because it included amounts that the debtor knew the general contractor had already paid to the debtor’s subcontractors/suppliers. The bankruptcy court disagreed: “The Court finds that, although the Debtor had been told that [the general contractor] had paid these subcontractors, in light of the ongoing dispute between Debtor and [the general contractor], it was reasonable for the Debtor to demand proof. Debtor’s subsequent filing of a partial satisfaction of lien once the Debtor received the requested proof of payment from [the general contractor] counters any claim of willful exaggeration.” In re Edgewater Construction Group, supra, at 672-673.

As to the second lien, the general contractor argued the subcontractor was not entitled to be paid because the general contractor had not been paid and the subcontract included a pay-if-paid provision. The bankruptcy court also disagreed and found that this argument would lead to an absurd outcome: “[T]he Court finds that, notwithstanding the presence of a ‘pay-if-paid’ clause, a subcontractor or materialman who files a claim of lien for amounts not yet due under a pay-if-paid contract in order to satisfy the statutory deadline has not filed a fraudulent claim of lien.” In re Edgewater Construction Group, supra, at 673.

Here is why this is interesting and things that should be noted when it comes to liens:

Just because you’ve been told a lower tier has been paid, doesn’t mean you need to take that as faith without proof.
Once you get that proof, the smart thing is to record a partial satisfaction of lien for those amounts. It’s the right thing to do and presents well, as it presented well here.
A lien needs to be recorded within a statutory deadline (90 days from final furnishing). This means that even if amounts are not yet technically due, the smart thing is to still lien for them to preserve your lien rights.

If you are dealing with a lien or non-payment, make sure to work with construction counsel the preserve and maximize your rights.

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.

ALERT: FRAUDULENT NOTICE OF NONPAYMENT DEFENSE APPLIES TO PAYMENT BOND CLAIMS

Posted on April 3, 2026April 3, 2026 by David Adelstein

Under Florida’s Lien Law, there’s an affirmative defense or affirmative claim known as a “fraudulent lien.” The fraudulent lien defense or claim is set out in Florida Statute s. 713.31. This defense also extends to payment bond claims, whether under a private statutory payment bond (Florida Statute s. 713.23) or a public payment bond (Florida Statute s. 255.05), as it pertains to the notice of nonpayment. A notice of nonpayment needs to be served within 90 days from final furnishing to preserve a claimant’s rights against the bond. However, there really has not been a case, until now, that discusses a “fraudulent notice of nonpayment.”

In K&M Electric Supply, Inc. v. Brown Electrical Solutions, LLC, 51 Fla.L.Weekly D672a (Fla. 4^th DCA 2026), a prime contractor and surety prevailed at the trial level on their fraudulent notice of nonpayment defense based on a supplier’s notice of nonpayment and action against a public payment bond (under Florida Statute s. 255.05).

A fraudulent notice of nonpayment defense is as follows:

A notice of nonpayment is fraudulent if the claimant has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. However, a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond.

K&M Electric Supply quoting Fla.Stat. s. 255.05(2)(a)(2).

The prime contractor and its surety argued the notice of nonpayment was fraudulent because (1) the supplier’s claim of nonpayment was significantly higher than the subcontract of the subcontractor (that procured the materials); (2) the claim and notice contained legal fees and charges not allowed to be claimed: and (3) the claim and notice contained items not covered by the subcontract or fell outside of the scope of the subcontract. The trial court found the notice of nonpayment and payment bond claim fraudulent. The appellate court affirmed, with a worthy discussion as to why it was affirming that the notice of nonpayment and payment bond claim were fraudulent:

[S]ection 255.05(2)(a)2. says a claim is fraudulent if the claimant does any one of three things: (1) willfully exaggerated the amount unpaid, (2) willfully included a claim for work not performed or materials not furnished for the subject improvement, or (3) prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. § 255.05, Fla. Stat. (2022); see Sprinkler Fitters & Apprentices Local Union No. 821, U.A. v. F.I.T.R. Serv. Corp., 461 So. 2d 144, 151 nn. 3, 6 (Fla. 3d DCA 1984) (noting “Section 255.05, Florida Statutes[ ] was patterned after the Miller Act . . . and relied on cases decided under this federal counterpart,” and explaining that under the Miller Act, “[a]ny lien asserted . . . in which the lienor has willfully exaggerated the amount for which such lien is claimed . . . or in which the lienor has compiled his claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”). Section 255.05(2)(a)2. also says that “a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond.” Id.

Here, [supplier] did not, before noticing the bond claim, conduct any investigation whatsoever into the amount it was actually entitled to claim on the bond, which is the amount of materials “actually incorporated” into the project. Aquatic Plant Mgmt., Inc., 977 So. 2d at 603. [Supplier] instead claimed every dollar billed to the project by [the subcontractor that hired it]. Of the roughly $123,000 claimed, only about (at most) $56,000 was actually incorporated into the project and therefore properly subject to the claim.

Accordingly, the third prong of the fraudulent lien test — that the claimant “prepared the notice with such willful and gross negligence as to amount to a willful exaggeration” — is met given the undisputed record in this case. No reasonable trier of fact could find otherwise: “the combined body of evidence presented by the two parties relevant to the material fact” is such that Appellees “would be entitled to a directed verdict at trial.” Fitzpatrick, 2 F.3d at 1116. And no reasonable trier of fact could find the error — the bulk of the claim — was “a minor mistake.”

Multiple errors existed in the notice — claiming (1) disallowable expenses, (2) items not within the subcontract’s scope, (3) an amount above the entirety of the subcontract’s value, and (4) items that were not “actually incorporated” into the project. Perhaps any of these errors could have, standing alone, led to some genuine dispute of material fact about whether the notice was prepared with such willful and gross negligence as to amount to a willful exaggeration, or to a genuine dispute about whether the errors were a “minor mistake.”

But the upshot of this case is that without even the most basic investigation as to what [supplier] was entitled to claim, [supplier] claimed $123,000 on a bond that it now acknowledges could pay out, at most, about $56,000. The trial court did not err in finding that the more than 100% discrepancy met prong (3) of the “fraudulent” test. That discrepancy was not a “minor mistake.” It was gross negligence. Given the record in this case, the claim was “fraudulent” as a matter of law.

K&M Electric Supply, supra.

Whether fair or unfair, the issue largely focused on the fact that the supplier could not prove the materials were actually incorporated into the project. And, very little due diligence was done to confirm this important point before serving the notice of nonpayment.

DON’T DO THIS WHEN IT COMES TO CONSTRUCTION LIENS

Posted on August 9, 2020August 9, 2020 by Edward Garber

When it comes to preparing and recording a construction lien, this case is an example of what NOT TO DO! I mean it — this exemplifies what NOT TO DO! It is also a case study of why a party should always work with counsel in preparing a construction lien so that you can avoid the outcome in this case–your lien being deemed fraudulent.

In Witters Contracting Company v. West, 2020 WL 4030845 (Fla. 2d DCA 2020), homeowners hired a contractor to renovate their home under a cost-plus arrangement where the contractor was entitled to a 10% fee on construction costs. The contract also required extra work to be agreed in writing between the owner and contractor.

During construction a dispute arose. The contractor texted the owner that it will cancel the permit and record a $100,000 construction lien if the owner did not pay it $30,000. Shortly thereafter, the contractor’s counsel sent the homeowners a demand for $59,706 with back-up documentation. Less than a week later, the contractor recorded a construction lien for $75,000. The owners initiated a lawsuit against the contractor that included a claim for fraudulent lien. The contractor then amended its construction lien for $87,239.

The trial court found that the contractor’s claim of lien was fraudulent because it was compiled “with such gross negligence as to the amount claims therein to constitute willful exaggerations.” A trial was held on damages and $87,239 was awarded as punitive damages against the contractor, plus attorney’s fees and costs, all of which were permissible when a lien is deemed to be a fraudulent lien.

Think about it. The contractor asked for $30,000 under the threat it will record a $100,000 lien. It then sent a demand letter for $59,706. Then it recorded a construction lien for $75,000. Then it amended the construction lien to $87,239. This was all in a very short time period. And, this is likely why the lien was deemed to have been compiled with such gross negligence as the contractor, evidently, had no clue what he was owed under the cost-plus contract or, if he did, he went about it incorrectly. It is possible the contractor was owed something, but the manner in which he went about it created the wrong perception. It is unclear whether his counsel was involved in preparing the lien or why the lien was different from the amount in the demand letter sent by counsel. Nevertheless, clearly, this is the perception you want to avoid and why working with counsel in preparing a lien is vital.

QUICK NOTE: USE COUNSEL WHEN PREPARING A NOTICE OF NONPAYMENT

Posted on July 12, 2020July 12, 2020 by Edward Garber

If you are a subcontractor or supplier working on a private construction project, you always want to pull up the Notice of Commencement from the public records to see if there is a payment bond in place. If there is not, you know you have to preserve your construction lien rights as to the real property (the project). If there is, you know you will have to preserve your rights against the payment bond.

In an earlier posting, I discussed statutory changes changes to notices of nonpayment that were to take effect as of October 1, 2019. A notice of nonpayment must be served by the unpaid claimant within 90 days of its final furnishing to preserve payment bond rights (for amounts above 10% retainage). These changes have gone into effect and are important for a claimant to know in order to preserve rights against an unconditional payment bond issued per Florida Statute s. 713.23. (If you are unsure about your rights relative to a payment bond, please work with counsel to ensure your rights are protected!) The notice of nonpayment is a statutory form that will need to be notarized by the claimant. The claimant should sign/notarize because the notice of nonpayment is reflecting amounts owed including retainage, the amount paid, and the approximate amount of money associated with to-be-performed work.

One of the recent statutory changes is that:

A claimant who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the claimant has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration.

It is uncertain how this will be applied to notices of nonpayment other than this mimics language relative to a “fraudulent lien.” One of the defenses to a fraudulent lien is known as the advice of counsel defense. It logically makes sense that this advice of counsel defense will also apply to the preparation of notices of nonpayment. For this important reason, a claimant should work with counsel and have its counsel prepare the notice of nonpayment with the relevant accounting information, whether it be a payment application(s), a change order log, an accounting summary, or potential change orders and issued back-charges. This will facilitate a discussion as to amounts to include and will support an advice of counsel defense. No different than a lienor using a lawyer to prepare a lien (and I would encourage all lienors to utilize counsel for lien preparation), a claimant should use a lawyer to prepare a notice of nonpayment.

Please let me know if you need assistance with preserving payment bond rights

QUICK NOTE: FRAUDULENT NOTICE OF NONPAYMENT

Posted on March 1, 2020March 1, 2020 by Edward Garber

There is a defense to construction liens raised by owners known as the fraudulent lien defense. A party can assert a fraudulent lien as an affirmative defense or as an affirmative claim. This is embodied in Florida Statute s. 713.31.

Recently, with respect to payment bond claims, there is also a defense relating to a party’s fraudulent notice of nonpayment. This fraudulent notice of nonpayment defense mimics the fraudulent lien defense and provides:

A lienor who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the lienor has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. However, a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond. The service of a fraudulent notice of nonpayment is a complete defense to the lienor’s claim against the bond.

Fla. Stat. s. 713.23(1)(d); 255.05(2)(a)(2).

It can be expected that any party required to serve a notice of nonpayment will receive as an affirmative defense to a payment bond lawsuit that the notice of nonpayment was fraudulent. There has not been a case as of yet to apply a standard to this defense so it is presumed that the standard will be fairly consistent with the standard applied to fraudulent liens. Nonetheless, even if the standard is challenging, this will be an expected defense where notices of nonpayment will be challenged as being fraudulent. Also, a claimant that is not required to serve a notice of nonpayment to preserve its payment bond rights will not have to deal with this notice of nonpayment defense.

If you need to serve a notice of nonpayment to preserve payment bond rights or, alternatively, are the recipient of a notice of nonpayment, it is prudent to consult with counsel to ensure your rights are appropriately preserved and protected. When dealing with fraudulent liens, a lienor can rely on advice of counsel if the lien is prepared by counsel. Presumably, a claimant that serves a notice of nonpayment should be able to rely on advice of counsel too if the notice of nonpayment was prepared by counsel.

PAROL EVIDENCE CAN BE USED TO DEFEAT FRAUDULENT LIEN

Posted on January 27, 2019April 24, 2020 by Edward Garber

Parol or extrinsic evidence can be used to defeat an argument that a lien is a fraudulent lien. And, just because a lien amount exceeds the total contract amount does not presumptively mean the lien is willfully exaggerated or recorded in bad faith. Finally, a ruling invalidating a construction lien can create the irreparable harm required to support a petition for writ of certiorari. All of these issues are important when dealing with and defending against a fraudulent lien and are explained in a recent case involving a dispute between an electrical subcontractor and its supplier.

In Farrey’s Wholesale Hardware Co., Inc. v. Coltin Electrical Services, LLC, 44 Fla.L.Weekly D130a (Fla. 2d DCA 2019), there were various revisions to the supplier’s initial purchase order, both from a qualitative and quantitative perspective, and a ninth-revised purchaser order was issued and accepted. The electrical subcontractor claimed that deliveries were late, unassembled, and did not include the required marking (likely the UL marking), to pass building inspections. As a result, the subcontractor withheld money from the supplier and the supplier recorded a lien in the amount of $853,773.16 and filed a foreclosure lawsuit.

The subcontractor moved for a motion for partial summary judgment that the lien should be deemed a fraudulent lien and invalid because it was overstated by approximately $32,000. The subcontractor argued that taking the amount of the ninth-revised purchase order and deducting the undisputed amount paid to the supplier would result in a lien amount of $825,417.06, approximately $32,000 less than the supplier’s lien amount. The supplier, through an affidavit, argued this delta is nothing more than a good faith dispute and can be explained because the total cost of materials furnished to the job site was based on its initial purchase order and its revised purchase order. The subcontractor countered that the affidavit is parol evidence and should be disregarded because the parties agreed on the total amount of the supplies through the ninth-revised purchase order and the supplier was trying to create a new contract through the affidavit. The trial court agreed and found the lien fraudulent, and issued a partial summary judgment invalidating the supplier’s lien. The subcontractor moved for a petition of writ of certiorari.

Parol Evidence Rule

“[T]he parol evidence rule prevents the terms of a valid written contract or instrument from being varied ‘by a verbal agreement or other extrinsic evidence where such agreement was made before or at the time of the instrument in question.’” Farrey’s Wholesale, supra(citation omitted). The parol evidence rule, however, is not applied to exclude evidence of subsequent agreements modifying the original agreement, or of fraud, accident, or mistake. Id.

The appellate court, reversing the trial court, found that the parol evidence rule “does not bar extrinsic evidence offered for the purpose of showing whether the filing of a construction lien was made in good or bath faith. This is a separate and distinct inquiry that does not trigger the parol evidence rule.” Hence, the appellate court maintained there were disputed issues of material fact as to whether the lien was fraudulent.

The appellate court further found that the trial court erred in finding the lien fraudulent in that just because the lien amount exceeded the ninth-revised purchase order does not mean it was willfully exaggerated. In other words, even if the ninth-revised purchase order was the complete agreement, the lien, in of itself, is not willfully exaggerated just because the lien exceeded the total amount of the contract.

Appeal of Lien

On another important point in this case, because the appeal was based on a writ of certiorari (versus a final appeal of a final dispositive judgment), there had to be irreparable harm to justify the basis of the appeal. The appellate court held there would be irreparable harm if the supplier had to wait until the end of the litigation to appeal because its judgment would then be unsecured (it would be without a remedy to pursue its lien which had been transferred to a lien transfer bond). See Farrey’s Construction Wholesale, supra (“This means that on remand [back to the trial court], all matters pertaining to Farrey’s construction lien, which includes the status of the lien transfer bond, will be returned to their prejudgment postures.”).

CONSULT WITH COUNSEL WHEN PREPARING CONSTRUCTION LIENS

Posted on April 8, 2017April 8, 2017 by Edward Garber

All too often entities prepare their own construction liens. Sure, it is an effective way to save a few bucks. No doubt about it. But, by doing so, you are (i) not relying on advice of counsel that is important when it comes to lien preparation and (ii) not relying on strategy that goes along with the preparation of a lien. When you are liening, the reason you are doing so is because you have not been paid. You therefore want to collateralize your nonpayment against the real property—the leverage of a construction lien. This is a very beneficial statutory tool if implemented correctly, so it only makes sense to do it “strategically” right.

A construction lien is a statutory form. So, how hard can it be? Filling out the “form” is not hard, however, there is legal significance to the information and amounts included in a lien. For instance:

There is significance to the amount you are liening. Are you liening for disputed change order work? Are you liening for amounts unrelated to base contract work?
There is significance to the final furnishing date. Are you liening within 90 days of performing base contract work unrelated to punchlist or warranty work?
There is significance to date the Notice to Owner was served (if you are not in privity with the owner). Was the Notice to Owner served within 45 days of initial furnishing?
There is significance to the legal description identified in the lien. Are you liening the right property based on the type of project you are working on?
There can even be significance to the initial furnishing date. Assuming you are the general contractor, what was your initial furnishing date in comparison with when the Notice of Commencement was recorded? If you are not a general contractor, when was the initial furnishing date in comparison with when you served the Notice to Owner?

And, there is legal significance to extraneous issues unrelated to the information in the lien. For instance:

There is legal significance to when the lien is served on the owner and others identified in the Notice of Commencement. Did you look at the Notice of Commencement to ensure the lien is served on those identified therein? Did you serve your lien within 15 days of recording?
There is legal significance to the timing of the recordation of the lien. Is the Notice of Commencement still in effect at the time the lien is recorded? Has there been an amended Notice of Commencement?

All of these are important considerations when dealing with a construction lien. There is value, however, consulting with counsel relating to all of the pertinent facts that surround the lien and having counsel prepare the lien for you. There is authority that consulting with and providing counsel all pertinent facts and relying on counsel in the preparation of the lien can serve as a lienor’s evidence of good faith to otherwise refute an owner’s fraudulent lien defense/claim. See Iberiabank v. Coconut 41, LLC, 984 F.Supp.2d 1283, 1302 (M.D.Fla. 2013).

Further, there is strategy that goes along with preparing a lien. Sometimes, there is value, in the case of a contractor in privity with the owner, with a lienor serving a Final Contractor’s Payment Affidavit along with the construction lien. Also, sometimes there is value serving a Request for a Sworn Statement of Account along with a lien.

Too many times, all of the issues and strategy that goes hand-in-hand with the preparation of a lien is lost when a lienor prepares its own lien. This is why there is value consulting with counsel in the preparation of construction liens.

SIGNIFICANT ISSUES TEST APPLIES TO FRAUDULENT LIEN CLAIMS TO DETERMINE ATTORNEY’S FEES

Posted on January 8, 2017November 8, 2024 by Edward Garber

Construction lienors need to appreciate on the frontend that recovering statutory attorney’s fees in a construction lien action is NOT automatic—far from it. This is because the prevailing party for purposes of attorney’s fees in a construction lien action is determined by the “significant issues test,” a subjective test with no bright line standards based on who the trial court finds prevailed on the significant issues in the case. If you want to talk about the subjective and convoluted nature of recovering attorney’s fees in a construction lien action under the significant issues test, a recent opinion by the Fourth District Court of Appeal is unfortunately another nail in the coffin.

In Newman v. Guerra, 2017 WL 33702 (Fla. 4th DCA 2017), a contractor recorded a construction lien on a residential renovation project and filed a lien foreclosure lawsuit. The homeowner countersued the contractor and asserted a fraudulent lien claim pursuant to Florida Statute s. 713.31. An evidentiary hearing was held on whether the lien was a fraudulent lien and the trial court held that the lien was fraudulent (therefore unenforceable) because it included amounts that were not lienable under the law. The remaining claims including both parties’ breach of contract claims proceeded to trial. There was no attorney’s fees provision in the contract. At the conclusion of the trial, the court found that the contractor was entitled a monetary judgment on its breach of contract claim.

Question: If the owner prevailed in the contractor’s construction lien claim and established that the lien was in fact fraudulent, is the owner entitled to his statutory attorney’s fees?

While equity may suggest “yes” as the answer, the answer is not necessarily. This is because of the significant issues test where the court is going to look at the outcome of the entire litigation to determine the party that prevailed on the significant issues in the entire case. Since the contractor ultimately recovered a money judgment, the court held the owner was not the prevailing party for purposes of attorney’s fees under the significant issues test. The contractor was not either, but this is beside the point since the owner established the lien was fraudulent and the contractor recovered a money judgment under a breach of contract claim that did not provide for attorney’s fees. Nonetheless, the court maintained:

In sum, the trial court properly applied the “significant issues” test…in denying the homeowner’s claim for attorney’s fees under section 713.31 [fraudulent lien statute]. Even if a party prevails on a fraudulent lien claim, the party must be the prevailing party in the case as a whole to be entitled to attorney’s fees under section 713.31.

Newman, supra, at *4.

WHAT IS A FRAUDULENT LIEN?

Posted on July 8, 2015July 8, 2015 by Edward Garber

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:

A fraudulent lien can be determined if a lien includes amounts that are NOT proper lienable amounts or if the lienor is NOT a proper lienor. Check out this article where appellate court found that lienor was not a proper lienor and, even if it was, its lien included improper amounts and remanded case to trial court to basically deem lien fraudulent.

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.

INCLUDE PROPER (LIENABLE) AMOUNTS IN YOUR CONSTRUCTION LIEN!

Posted on December 13, 2014November 8, 2024 by Edward Garber

Contractors, subcontractors, and suppliers need to appreciate what amounts to actually include in a construction lien before preparing and recording that lien. Stated differently, contractors, subcontractors, and suppliers need to appreciate what items are lienable and what items are not. In a nutshell, the item needs to relate to a labor, service, or material constituting an improvement to the real property—the item needs to bestow a permanent benefit on the real property and should be performed under another’s (e.g., general contractor) direct contract with the owner.

Not every item constitutes an improvement / bestows a permanent benefit to real property.

Items that have NOT been found to be properly lienable include without limitation:

Extended general conditions / delay damages;
Residential cleaning;
Maintenance services including landscaping and pool upkeep (see example below);
Materials from a supplier not incorporated into property (excluding specially fabricated materials);
Lost profit;
Expert witness services;
Insurance and property tax payments for partially constructed home (see example below);
Constructing a removable kiosk at a mall (see example below); and
Extras (change order work) not performed in good faith, pursuant to the terms of a contract, within a reasonable time, and were unnecessary to finish a job.

For example, in Palm Beach Mall, Inc. v. Southeast Millwork, Inc., 593 So.2d 1121 (Fla. 4^th DCA 1992), a contractor constructed a kiosk in a mall and recorded a lien for unpaid amounts. The kiosk was not a permanent improvement to the mall, but was removable at the termination of the tenant’s lease. The Court held that the contractor could not lien for constructing the kiosk.

As another example, in Levin v. Palm Coast Builders and Const. Inc., 840 So.2d 316 (Fla. 4^th DCA 2003), a contractor recorded a lien that included costs for lawn maintenance, pool upkeep, utility charges, and association maintenance fees. Not only did the Court hold that these items were not lienable, but affirmed that the lien was fraudulent!

And, as the last example, in Sam Rodgers Properties, Inc. v. Chmura, 61 So.3d 432 (Fla. 2d DCA 2011), discussed in detail in a previous posting, a contractor was building a custom home when a payment dispute arose. The owner stopped making payments and the contractor ceased construction and recorded a lien. Subsequently, the contractor performed additional work to protect the unfinished structure from the elements and amended its lien to include these amounts as well as property taxes and insurance the contractor paid on the property. Regarding the additional work to protect the unfinished structure, the Court held that these amounts were lienable: “All of these items were contemplated by the contract, and all of them were completed in a good faith effort to secure the property and mitigate damages so that a bad situation did not become worse.” Chmura, 61 So.3d at 439. But, as it related to the property taxes and insurance, the Court held these items were not lienable as they pertained to the maintenance of the property as opposed to improvement of the property.

By including inappropriate amounts in a lien, a lienor runs the risk of having its lien declared fraudulent under Florida’s Lien Law that would not only render the lien invalid, but expose the lienor to liability. Do not let this happen to you!