Got Lien Rights?

INTRODUCTION

Whoever performs engineering or land surveying services with respect to real estate, or
contributes to the improvement of real estate by performing labor, or furnishing skill, material or machinery, whether under contract with the owner of
such real estate or as a subcontractor, shall have a lien upon the improvement, and upon the land on which it is situated. Minn. Stat. Sec. 514.01

If you are required to be licensed by the Minnesota Department of Labor and Industry and are not, you will be unable to retain lien rights.

"All residential building contractors and residential remodelers who contract with an owner to construct or improve dwellings for habitation by one to four families (including detached garages) and perform two or more special skills must be licensed unless exempt.

If you have questions about whether a license is required, call the Department of Labor and Industry at (651) 284-5065 to discuss your activities and what type of license may be required. Unlicensed activity may result in administrative action."

Source: Minnesota Department of Labor and Industry

Mechanic's liens are a creature of statute; therefore, the statutes must be strictly followed or one may lose one's lien rights. Mechanic's liens are governed by Minnesota Statutes Chapter 514.

There are 3 basic steps to the mechanic's lien process:

  1. Pre-lien Notice
  2. Mechanic's Lien Statement
  3. Foreclosure

PRE-LIEN NOTICE

1. General Contractor Pre-lien Notice

"Every person who enters into a contract with the owner for the improvement of real property and who has contracted or will contract with any subcontractors or material suppliers to provide labor, skill or materials for the improvement shall include in any
written contract with the owner the notice required in this subdivision and shall provide the owner with a copy of the written contract. If no written contract for the improvement is entered into, the notice must be prepared separately and delivered personally or by certified mail to the owner or the owner's authorized agent within ten days after the work of improvement is agreed upon". Minn. Stat. Sec. 514.011.

"The notice, whether included in a written contract or separately given, must be in at least 10-point bold type, if printed, or in capital letters, if typewritten and must state as follows:

'(a) Any person or company supplying labor or materials for this improvement to your
property may file a lien against your property if that person or company is not paid for the contributions.
(b) Under Minnesota law, you have the right to pay persons who supplied labor or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.'

Best Practice Rule:

Always give pre-lien notice to the owner (check with the County's Property Records Department).

2. Subcontractor Pre-lien Notice

A person who contributes to the improvement and provides skill, labor, or materials to real property may obtain a mechanic's lien on the property by giving the owner pre-lien notice within 45 days after the claimant's first contribution. Minn. Stat. Sec. 514.011.

The written notice must be "in at least 10-point bold type, if printed, or in capital letters, if typewritten, which shall state:

'This notice is to advise you of your rights under Minnesota law in connection with the improvement to your property.

Any person or company supplying labor or materials for this improvement may file a lien against your property if that person or company is not paid for the contributions.

We ...... (name and address of subcontractor) have been hired by your contractor .... (name of your contractor) to provide.........(type of service) or.......... (material) for this improvement. To the best of our knowledge, we estimate our charges will be $......... (value of service or material).
If we are not paid by your contractor, we can file a claim against your property for the price of our services. You have the right to pay us directly and deduct this amount from the contract price, or withhold the amount due us from your contractor until 120 days after completion of the improvement unless your contractor gives you a lien waiver signed by me (us). We may not file a lien if you paid your contractor in full before receiving this notice.'

Best Practice Rule:

Always give pre-lien notice to the owner (check with the County's Property Records Department) and to the general contractor.

3. Exceptions to Notice

Pre-lien notice is not required in the following circumstances:

  1. Where the contractor is managed or controlled by substantially the same persons who manage or control the owner of the improved real estate.
  2. In connection with an improvement to real property consisting of or providing more than four family units when the improvement is wholly residential in character.
  3. In connection with an improvement to real property which is not in agricultural use and which is wholly or partially nonresidential in use if the work or improvement:
    1. is to provide or add more than 5,000 total usable square feet of floor space; or
    2. is an improvement to real property where the existing property contains more than 5,000 total usable square feet of floor space; or
    3. is an improvement to real property which contains more than 5,000 square feet and does not involve the construction of a new building or an addition to or the improvement of an existing building.

Best Practice Rule:

Always give pre-lien notice to the owner (check with the County's Property Records Department) and to the general contractor.

MECHANIC'S LIEN STATEMENT

The lien expires 120 days after the last item or labor furnished to the property, unless within that time a Mechanic's Lien Statement is:

  1. Served personally or by certified mail on the owner of the real property or owner's authorized agent or the person who entered into the contract with the contractor; and
  2. Recorded with the County Recorder.

The Lien Statement must contain:

  1. a notice of intention to claim and hold a lien, and the amount thereof;
  2. that such amount is due and owing to the claimant for labor performed, or for skill, material, or machinery furnished, and for what improvement the same was done or supplied;
  3. the names of the claimant, and of the person for or to whom performed or furnished;
  4. the dates when the first and last items of the claimant's contribution to the improvement were made;
  5. a description of the premises to be charged, identifying the same with reasonable certainty;
  6. the name of the owner thereof at the time of making such statement, according to the best information then had;
  7. the post office address of the claimant. (The failure to insert such post office address shall not invalidate the lien statement);
  8. that claimant acknowledges that a copy of the statement must be served personally or by certified mail within the 120-day period provided in this section on the owner, the owner's authorized agent or the person who entered into the contract with the contractor as provided herein; and
  9. that pre-notice, if any, was given.

Minn. Stat. Sec. 514.08.

Best Practice Rule:

Retain the services of a qualified attorney.

FORECLOSURE

Foreclosure on the lien must occur within one year of the last item of work. A lienholder may commence such an action in district court naming all other lienholders and anyone with an interest in the property as defendants.

The lienholder shall record a Notice of Lis Pendens with the County Recorder. The Complaint must then be filed with the Court Administrator's office no later than one year of the last item of work.

Minn. Stat. Sec. 514.12

LIEN WAIVER

"The owner may withhold from the owner's contractor as much of the contract price as may be necessary to meet the demands of all persons, other than the contractor, having a lien upon the premises for labor, skill, or material furnished for the improvement, and for which the contractor is liable. The owner may pay and discharge all these liens and deduct the cost of them from the contract price. No owner shall be required to pay the owner's contractor until the expiration of 120 days from the completion of the improvement, except to the extent that the contractor furnishes to
the owner waivers of claims for mechanics' liens signed by persons who furnished labor, skill or material for the improvement and who have given the notice required by section 514.011, subdivision 2. The owner, within 15 days after the completion of the contract, may require any person having a lien hereunder, by written request therefor, to furnish to the owner an itemized and verified account of the person's lien claim, the amount of it, and the person's name and address. No action or other proceeding may be commenced for the enforcement of the lien until ten days after the statement is furnished. The word "owner," as used in this section, includes any person interested in the premises other than as a lienor."

Minn. Stat. Sec. 514.07

PENALTIES FOR NONPAYMENT

A contractor who collects funds from an owner of real estate for the benefit of labor or materials furnished by a subcontractor, but fails to pay the proceeds to the subcontractor entitled thereto, is guilty of theft of the proceeds and is punishable under Minn. Stat. Sec. 609.52. This can be a felony and punishable by up to 20 years in prison or a fine up to $100,000.00 depending on amount of the proceeds.

A person injured by a contractor's failure to provide proceeds may bring a civil action to recover damages together with costs and disbursements, including costs of investigation and reasonable attorney fees, and receive other relief as determined by the court, including, equitable tracing.

Minn. Stat. Sec. 514.02

OTHER RESOURCES

Minnesota Department of Labor and Industry
www.doli.state.mn.us
This website contains valuable information from licensing to statutes.
Building Codes and Standards Department:
(651) 284-5068

Ryan & Grinde, Ltd:
www.ryanandgrinde.com

For more information please contact Paul H. Grinde.

DISCLAIMER:

This information has been prepared for general information purposes only. This information is not legal advice. Legal advice is dependant upon the specific circumstances of each situation. Laws not only vary from jurisdiction to jurisdiction, but also change frequently within a given jurisdiction. Therefore, this information cannot replace the advice of competent legal counsel in your state.