Mechanic's Liens
Substantial Compliance with Mechanic’s Lien Statutes is Sometimes Sufficient
Timothy J. Abeska
January 23, 2014
Mechanic’s lien statutes are often strictly construed, but recent cases decided by Indiana and Michigan courts show that, under some circumstances, substantial compliance with statutory requirements is sufficient to preserve lien rights.
Under Indiana law, a condition precedent to acquiring a lien on a home construction project is the issuance of a pre-lien notice. In Von Tobel Corp. v. Chi-Tec Constr. & Remodeling, Inc. 994 N.E.2d 1215 (Ind. Ct. App. 2013), the pre-lien notice was issued by “Von Tobel Home Center, Inc.” in January 2007. Invoices for materials were issued to the general contractor by “Von Tobel Lumber & Hardware.” In July 2008, “Von Tobel Corporation” recorded a notice of mechanic’s lien. The property owner challenged the validity of the lien because the pre-lien notice did not identify the lien claimant that actually recorded a lien. The trial court invalidated the lien, but the Court of Appeals reversed. (A petition for rehearing was denied on Dec. 10, 2013.)
The Court focused on the remedial nature of the Indiana lien statute, stating that a hypertechnicality should not frustrate the intent of the statute. The Court identified three factors to be assessed in analyzing whether a claimant has complied with the lien statute: 1) the degree of non-compliance, 2) the policy underlying the statutory provision at issue, and 3) the resulting prejudice to the owner or other parties claiming an interest in the real estate. Here, the variance in the pre-lien notice was minimal, and the purpose of the statute was fulfilled. The owner knew that a Von Tobel entity supplied materials, but did not take steps to direct funds to Von Tobel.
Substantial compliance was also among many issues addressed in Rogers Excavating, Inc. v. Mana Properties, L.L.C., 2013 WL 5763028 (Mich. Ct. App. October 24, 2013). In that case, the project owner recorded a notice of commencement required by Michigan law after the general contractor (which was hired by a construction manager) had already started work. The notice of commencement named the title company as the owner’s designee. The contractor provided a notice of furnishing (a condition precedent to asserting a lien), which he testified was delivered to the owner and construction manager, but not the title company. The contractor ultimately recorded a mechanic’s lien. The trial court invalidated the lien, holding that the contractor failed to provide: 1) a notice of furnishing to the owner’s designee, or 2) sworn statements in proper form when requesting payments. The Court of Appeals reversed.
Under the applicable Michigan statute, MCL § 570.1302(1), substantial compliance is sufficient for the validity of construction liens. Here, based on the Court’s conclusion that the contractor had a direct contract with the owner (having been hired by the construction manager as the owner’s agent) and testimony that the notice of furnishing was delivered to the owner and construction manager, there was sufficient compliance with the statute. Similarly, MCL § 570.1110(4) specifies a form of sworn statement, but also states that the sworn statement provided must be in “substantially” the same form as set forth in the statute. Here, all the required information was provided.
Although the lien claimants in these cases ultimately prevailed, costly litigation was required to obtain those results. These cases demonstrate the need for legal advice when perfecting liens.
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SOURCE: www.lexology.com