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Mechanics’ Liens in Minnesota

 

A.   Introduction.

       Mechanics’ Liens can be very useful to those working in the construction industry.  In Minnesota, having a Mechanic’s Lien gives the lien claimant three advantages:

a)        A Secured Interest in the Real Estate being improved.

b)        Statutory Interest on Past Due Amounts.

c)        Court Costs and Fees, plus a good chance at attorney fees in pursing the lien.

        Having the right to interest, costs and attorney fees gives a lien claimant an advantage if they do not have those rights under their contracts and can mean the difference in being made whole, verses having to discount a claim due to the cost to pursue collection

        In situations where the person or entity who contracted for your work runs out of money or goes out of business, having a Mechanic’s Lien often is the difference in whether you get paid or not, and normally gives you an advantage over unsecured creditors.

        In situations where a project runs out of money or falls into financial distress, a Mechanic’s Lien may be the only way to collect for one’s work, however the advantages may go away if there are mortgages or other liens ahead of the lien claimants in excess  of the property’s value.

 B.   Understanding Mechanics’ Liens.

        To understand Mechanics’ Liens in Minnesota, it helps to think of them from an opposite point of view of what seems natural.  They should be viewed, that once you start work on a project, you have a Mechanic’s Lien, however you must perform certain actions in order to not lose the lien.   There are essentially three time sensitive actions that must be taken to preserve one’s Mechanic’s Lien interest:

1.      Pre-Lien Notice

        The first item needed to be addressed is to either give a Pre-Lien Notice, or fall under an exception to the Pre-Lien Notice requirement.

        a.      Notice Requirements.  The Pre-Lien Notice requirement differs depending on whether you are a General Contractor (those in direct contract with the property owner,) or a Subcontractor or Materialmen.

        i.     General Contractors (those in direct contract with the property owner.)  If you have a direct contract with the owner, certain “Pre-Lien” notice language is required in your contract, or if not written contact is entered, then given in a separate writing within 10 days of the oral contract, unless you qualify for an exception to that notice (see “Exceptions” discussed below).  The required language of the notice is set forth in Minn. Stat. §514.011, subd. 1.

        ii.    Subcontractors and materialmen are required to serve a “Pre-Lien” notice on the owner, unless they have a direct contract with the owner of the property.  There are exceptions to this general rule which cover most commercial properties (see “Exceptions” discussed below).  If you do not meet one of the exceptions then the notice must be given to preserve your lien rights.  The language of the notice is set forth in Minn. Stat. §514.011, subd. 2.  This notice may be either personally delivered or sent by certified mail to the owner or his agent within 45 days from the date labor or materials are first furnished for the improvement.  Note, however, that the sooner the notice is served the better, since you can only obtain a lien against the monies remaining due from the property owner to the general contractor at the time the property owner receives this notice.

        b.     Exceptions.  Subd.’s 4(a), (b) and (c) of Minn. Stat. §514.011 set forth the exceptions for having to give the above-mentioned notices upon the owner.  These exceptions fall under two categories.

i.      The nature of the relationship between the contractor and owner; and

ii.     The nature and size of the improvement.

No notice is required where the owner and the general contractor are managed or controlled by substantially the same person(s).

For commercial property, no notice is required if the property being improved has more than 5,000 square feet of floor space.

For residential purposes, no notice is required if the improvement is to real property where more than four family units are being worked upon.  For example, the notice would not be required on apartment buildings (since not residential) nor condominiums or townhouses, where more than four units are being improved.  In all other cases it is best to serve the Notice.

             There are obviously numerous nuances to whether a lien claimant qualifies for an exception, so it is best to check with a qualified legal counsel before relying upon an exception.

2.     Mechanics’ Lien Statement

        The second document that must be processed to keep from losing your lien rights is the Mechanics’ Lien Statement.  This Statement must be served upon the owner and filed with the County Recorder/Registrar within 120 days from the date you last supplied labor or materials directly to the job site.  Such last work must be a part of your contract, and not merely work performed or materials supplied for the purpose of extending the deadline.  The Statement requires certain information as spelled out in Minn. Stat. §514.08.  In my practice, I supply a Worksheet to clients to help them gather the necessary information.  Otherwise there are numerous forms available from a variety of sources that can be used, however, they must comply to the Statutory requirements.  There is no way of extending the 120 day deadline, therefore lien claimants should keep track of their last date of work and calendar their jobs to give sufficient time to gather the necessary information and file and serve the Lien Statement before the expiration of the 120 day deadline.

3.     Commence or Joint in a Foreclosure Action

        Once the Mechanics’ Lien Statement is served and filed, a lien claimant’s rights are perfected for one year from the last date of work. (Note: not one year from filing the statement, but from the last date of work.)  If a lien claimant is not paid within that year then the third step that must be taken to maintain Mechanic’s Lien rights, is for the lien claimant to either bring or join in a foreclosure action to force the sale of the property to satisfy the Mechanic’s Lien.  Failing to start or join in a foreclosure action within that year will cause the Mechanic’s Lien Rights to automatically expire.

        Starting or joining in a foreclosure action has very specific rules and should be undertaken by qualified legal counsel.  Certain title work and other information must be gathered, so it is best to not wait until the end of the one year period, but preparations should be started well before the one-year deadline approaches.

 C.   Conclusion.

        I hope you find the above information useful.  It is a basic outline of how Mechanics’ Liens work in Minnesota, however, due to the limited scope of this article many circumstances and aspects of Mechanics’ Liens could not be addressed.  If you have a situation involving Mechanic’s Lien Rights, whether as an owner or lien claimant, I suggest you seek out competent legal counsel.  I have 25+ years of experience in dealing with all aspects of Mechanics’ Liens, so feel free to contact me so we can discuss your situation.

 Brian W. Rude

 

 

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