OWNER CAN’T PURSUE STATUTORY SHOW CAUSE COMPLAINT TO CANCEL LIEN… FAIR OUTCOME?

Posted on May 18, 2024May 18, 2024 by David Adelstein

If there is a payment dispute with a construction lienor — could be a contractor, a subcontractor, or supplier – it is possible, and more than likely, a construction lien may get recorded against real property. This scenario is not uncommon as the lien is the mechanism for the lienor to collateralize their claimed nonpayment. Now, in reality, it does not take much money to record a lien. A lienor should utilize a lawyer to prepare their liens, but maybe they prepare liens in-house. Regardless, the recording of the lien is a nominal cost and the clerk that dockets and records the lien does NOT analyze the merits of the lien. That is not what the clerk is there to do; nor do you really want them the delve into the factual merits.

Well, what if a lien is facially invalid, meaning that the lien, on its face, includes information that demonstrates it is NOT properly perfected. Or what if the lienor failed to properly preserve or perfect its lien rights before recording the lien. This happens! Naturally, an owner of the real property wants the lien removed from the property. The owner does not want the encumbrance.

The owner could transfer the lien to a lien transfer bond under Florida’s Lien Law, but that is easier said than done. And this does not discharge the lien; it just removes the lien from the property to the security of the bond.

The owner could pay the lienor to record a satisfaction of lien but then the lienor wins by improperly leveraging its payment dispute with an invalid lien. (Frankly, sometimes this makes sense irrespective of the perceived “win.”)

The owner could record a notice of contest of lien under Florida’s Lien Law to shorten the lienor’s time period to foreclose on the lien from one year to sixty days. This is generally the approach I suggest because if the lienor does foreclose within the sixty days there is the strong chance the lienor was always going to foreclose on the lien so why not bring the dispute to the head sooner than later.

Then, there is a statutory procedure under Florida’s Lien Law (Florida Statute s. 713.21(4)) oftentimes referred to as the “order to show cause” complaint where the lienor is given 20 days to show cause why its lien should not be enforced or cancelled of record (which is done by timely foreclosing the lien within 20 days after service of the summons):

By an order of the circuit court of the county where the property is located, as provided in this subsection. Upon filing a complaint by any interested party the clerk shall issue a summons to the lienor to show cause within 20 days after service of the summons why his or her lien should not be enforced by action or vacated and canceled of record. Upon failure of the lienor to show cause why his or her lien should not be enforced or the lienor’s failure to commence such action before the return date of the summons the court shall order cancellation of the lien.

An owner may do this because the owner has its own claims against the lienor. Or the owner may want to force the lienor to “make a move” or else lose the lien if the lienor does not timely foreclose. Strategically, it is an approach owners do pursue in certain contexts.

Unfortunately, a recent case adds uncertainty to the strategic value of this approach, or at least how the order to show cause complaint is pled.

In Calixte v. Coastal Building Contractors, LLC, 2024 WL 1896114 (Fla. 4^th DCA 2024), an owner filed an order to show cause complaint against a lienor under Florida Statute s. 713.21. The owner alleged the lienor was required to serve a notice to owner, and did not, and therefore its lien should be cancelled for being invalid. The lienor, which was required to file its lien foreclosure counterclaim within 20 days, did not. That should have been it. But it was not. The lienor argued that s. 713.21 does not apply because the owner alleged that the lien was not properly perfected when it alleged the lienor failed to serve its notice to owner. The lienor made this argument because s. 713.21 is prefaced, “A lien properly perfected under this chapter may be discharged, or released in whole or in part, by and of the following methods…[(4) through the order to show cause complaint].” In other words, because the owner alleged the lien was not properly perfected, the order to show cause complaint was not an option. Sadly, the appellate court agreed: “As the complaint in this case specifically alleged [the lienor] had failed to perfect its lien by serving a “notice to owner” and therefore had no lien rights, [owners] could not avail themselves of this special statutory procedure authorized by section 713.21.” Calixte, supra, at *2.

This ruling, quite frankly, is unjust and somewhat ridiculous. Here is why. The lienor is still foreclosing the lien. Thus, the lienor does not agree its lien is not properly perfected. The lienor believes it is properly perfected because it is still pursuing its lien foreclosure. Next, if you read s. 713.21, it talks about other procedures to discharge a lien including a satisfaction of lien, by a judgment, or by the lienor failing to timely foreclose the lien. These options are subject to the exact same prefatory language, “A lien properly perfected under this chapter may be discharged, or released…” If the show cause complaint is not an option because of this prefatory language, what about these other standard options? And lastly, this leaves the owner that disputes the merits of a lien with really only two options if it believes a lien is not properly perfected: (1) the notice of contest of lien (my preferred option), and (2) transferring a lien to a lien transfer bond, which does not discharge the lien but simply transfers the lien from the real property to the security of the bond. Meanwhile, the encumbrance created by the lien still exists simply because the owner implemented a statutory procedure on a lien the owner did not think was properly perfected, yet the lienor disagreed. And here is what the case does not discuss. What if the owner did not allege the lien was not properly perfected? But in reality it was not. In that context would the statutory procedure apply because if pursuing this option there is no value to allege the lien is not properly perfected in light of this ruling.

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.

OPTIONS WHEN THERE IS CONSTRUCTION LIEN ON YOUR PROPERTY

Posted on May 6, 2016May 6, 2016 by Edward Garber

There is a construction lien on my property. What are my best options? I hear this question quite a bit…so here it goes…

(1) Do nothing. That’s right – do nothing. If you are not looking to sell your house or refinance in the next year or so, you can do nothing and see whether the lienor files a construction lien foreclosure lawsuit. The lienor has one year from the recording of the lien to file the lawsuit.

(2) Record a Notice of Contest of Lien. The Notice of Contest of Lien shortens the lienor’s statue of limitations to foreclose on the lien from one year to 60 days. If the lienor fails to foreclose on the lien within 60 days, the lien is extinguished by operation of law. This is the route I tend to prefer. If the lienor is going to file a lien foreclosure lawsuit, I tend to think it is better forcing the issue on the front end as opposed to waiting a year. But every situation is different.

(3) File a lawsuit against the lienor to show cause why the lien should not be discharged. In this type of show cause lawsuit, the lienor has 20 days to foreclose on its lien (typically, through a counterclaim) or else the lien is cancelled of record. This is an aggressive approach.

(4) Serve a Request for Sworn Statement of Account. If the lienor fails to timely respond within 30 days to the Request for Sworn Statement of Account, you now have the statutory defense that the lienor lost its lien / lost its lien rights in the event the lienor elects to foreclose. Serving a Request for Sworn Statement of Account can be done in conjunction with any of the above approaches; however, if you take the aggressive approach and file a lawsuit to show cause, you will want to wait the 30 day period to expire to see if the lienor responds.

(5) Transfer the Lien to a Lien Transfer Bond. If you don’t like the fact that the lien is encumbering your property, you can transfer the lien to a lien transfer bond. So, instead of the lienor foreclosing its lien as to real property, it is foreclosed against the lien transfer bond. This option can be done in conjunction with any of the above options and can be implemented after a lienor files a construction lien foreclosure lawsuit against your property.

No matter what option you consider pursing, I would strongly recommend that you work with an attorney. Don’t be a penny wise and pound foolish by trying to draft documents on your own. Sure you can. But an attorney can help you ensure that (a) the option you are pursuing is the best option for your interests and (b) the option you pursue is done correctly.

OH NO! A LIEN IS RECORDED! WHAT ARE SOME OF MY OPTIONS?

Posted on April 11, 2014April 11, 2014 by Edward Garber

You are an owner and a construction lien is recorded on your property. Or, you are a general contractor required to indemnify the owner for construction liens and a subcontractor you are in a dispute with records a construction lien (or one of the subcontractor’s suppliers or subcontractors records a lien). What are your options (other than paying the lienor in consideration of a satisfaction of lien) to extinguish the lien or transfer that lien to another form of security other than the real property?

(1) Notice of Contest of Lien – This is an efficient, cost effective strategy that I oftentimes prefer to use to truly determine whether a lienor (entity that recorded lien) actually intends on foreclosing on the lien. Recording a Notice of Contest of Lien pursuant to Florida Statute s. 713.22 shortens the statute of limitations to foreclose on the lien to 60 days after service of the Notice; if the lienor neglects to do so, the lien is extinguished. (A construction lien is otherwise good for one year from its recording.) Section 713.22 provides that an owner or an owner’s attorney can record a Notice of Contest of Lien in the official records (same official records where the lien is recorded). The Notice is a statutory form (see form below). Once it is recorded, the clerk serves it on the lienor at the address in the lien putting the lienor on notice that it must foreclose within 60 days. Notably, because the statute says an owner or owner’s attorney should record this, if representing the general contractor, I typically suggest that the general contractor get the owner to sign the Notice (or, get the owner’s permission that it is acceptable for the general contractor to sign as a representative for purposes of the Notice).

(2) Filing a Lawsuit to Show Cause – Another approach to shorten a lienor’s statute of limitation to foreclose on the lien is to file a complaint pursuant to Florida Statute s. 713.21 where the clerk issues a special summons “to the lienor to show cause within 20 days why his or her lien should not be enforced by action or vacated and canceled of record.” Fla. Stat. s. 713.21. Any interested party can file this lawsuit and the lawsuit is typically accompanied with a fraudulent lien claim against the lienor. When a lienor receives this lawsuit, it MUST foreclose on its lien within 20 days from service or else its lien should be discharged by the court. However, this requires drafting of the lawsuit and the special show cause summons, filing the lawsuit, and serving the lawsuit, so it certainly is not as cost effective as the first option. Also, sometimes, by the time the lawsuit is drafted, filed, and served, the 20 day show cause period would be pretty close to the expiration of the 60 days if the Notice of Contest of Lien was recorded. Every situation is different and there are circumstances where filing this lawsuit is a more attractive option than recording the Notice of Contest of Lien.

(3) Transferring the Lien to Alternative Security such as a Lien Transfer Bond – Sometimes, an owner needs the lien off of its property immediately and wants the lien transferred from the real property to alternative security such as a lien transfer bond. This is done pursuant to Florida Statute s. 713.24 where cash or a surety bond is posted with the court “in an amount equal to the amount demanded in such claim of lien, plus interest thereon at the legal rate for 3 years, plus $1,000 or 25 percent of the amount demanded in the claim of lien, whichever is greater, to apply on any attorney’s fees and court costs that may be taxed in any proceeding to enforce said lien.” Fla.Stat. s. 713.24. Typically, no one wants to post and tie up cash in the amount of the lien, plus 3 years of interest, plus another 25% of that lien amount to cover potential fees/costs. And, obtaining a surety bond is not always easy without posting collateral or cash to the surety, etc., so that the surety’s risk in posting the bond in the event the lienor prevails is mitigated. Now, a lien can be transferred to a lien transfer bond at any time including during the pendency of a lawsuit. For example, let’s say you elect option (1) or (2) above and the lienor does timely foreclose on the lien; the option of transferring the lien is still available. The major difference is that if a lien foreclosure lawsuit is underway and the lien transferred to a bond (or cash), the lienor has one year from the date of the transfer to amend its lawsuit to assert a claim against the bond. If the lien is transferred before the lien foreclosure lawsuit, then the one year to foreclose on the lien from the date the lien is recorded still applies.

An attorney should be consulted to assist you to determine the best option and strategy for you if a lien is recorded based on your circumstances.

NOTICE OF CONTEST OF LIEN

To: (Name and address of lienor)

You are notified that the undersigned contests the claim of lien filed by you on ___, (year) , and recorded in ___ Book ___, Page ___, of the public records of ___ County, Florida, and that the time within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice. This ___ day of ___, (year) .

Signed: (Owner or Attorney)