(Originally published in the September 2008 Housing Journal)
Lien Law Gives Construction Industry “Special” Rights
It is often said, “anybody can sue anybody”. This is certainly true in disputes over payment for construction work. However, our laws give a special right to those who have supplied materials and/or labor to improve the property of another. This is the right to file a claim of lien against the property of the owner for payment for labor performed and/or materials supplied, under certain circumstances. The mechanics’ and materialmen’s lien law is spelled out in the New Mexico Statutes 48-2-1 through 48-2-17.
Perceived abuse of the Lien Law by the construction industry during the 1980s lead to a major change in the law in 1989. The resultant Stop Notice Act was explained in the last issue of the Housing Journal, and set rigorous deadlines for notices to property owners and original contractors. If you have an interest in details of NM mechanic’s lien law be sure to read that article as well.
With the current economic downturn, it seems everyone is talking about mechanic’s liens. We’re hearing of an increase in the number of mechanic’s liens being filed. Many lien filers are purchasing a form online and filling in the blanks by themselves, without consulting an attorney or a lien expert service. While we don’t recommend this, general knowledge of our lien law is important for anyone in the construction industry. The purpose of this article is to help inform you about some of the items a contractor, supplier or remodeler should consider before filing a claim of lien on either new construction or remodel work. The rights available under our laws vary depending on circumstances, and whether a job is residential or commercial. If the project is a residential dwelling of four units or less, it is considered “residential” under our law. See NMSA 48-2-2.1 and the Stop Notice Act set forth in NMSA 48-2A-1 through 48-2A-12.
The lien right granted to contractors and suppliers is the right to make a legal claim against the property upon which work was performed or materials furnished, but for which payment has not been received. A short paragraph in NMSA 48-2-6 explains the basics. The important words (somewhat paraphrased) are these:
“Every original contractor, within one hundred and twenty days after the completion of his contract, and every person except the original contractor, desiring to claim a lien pursuant to (these sections) must, within ninety days after the completion of any (work on a building, improvement or structure) file for record with the county clerk (where the work was performed) a claim containing a statement of his demands…”
Thus, for the “original contractor” (a contractor who contracts directly with the owner), the filing must be done within 120 days after completion of the work. Subcontractors and suppliers have the same right, but it must be exercised within 90 days following installation of the work or supplying the material. Certain prior notice requirements may apply, depending upon the nature of the work and contracting relationship. These are more specifically described in NMSA 48-2-2.1.
Our lien law gives this right such importance that a valid lien, timely filed, has preference over any lien or mortgage attached to the property after the work commenced or the materials were furnished. See NMSA 48-20-5. The mechanics’ lien law also provides that the lien claimant must file a lawsuit to enforce the claim of lien within two years after filing the claim, at which time the lien right “expires”. See NMSA 48-2-10.
Getting It Right
NMHBA highly recommends that legal advice be sought whenever a contractor or supplier is considering placing a lien on someone’s property. Done correctly, a claim of lien can make the difference in getting paid or not. But if it’s done incorrectly or inappropriately, a contractor or supplier may be left without a good claim for payment, and under some circumstances, an improper lien filing could even create a risk of liability for the party filing the claim of lien. Of course, filing a claim of lien does not ensure payment, but it may go a long way to encouraging payment.
There are several requirements that must be satisfied in order to have a valid claim of lien. While courts are fairly lenient regarding minor mistakes in the claim of lien, some mistakes can make the lien unenforceable. This is one good reason why everyone filing a claim of lien should seek expert advice. The following information will show some of the items you should consider. Please understand this is not a complete list and, depending upon the particular situation of each project’s circumstances, other requirements may apply in order to have a valid and enforceable claim of lien.
First – The claim of lien must be filed of record with the county clerk of the county where the property is located, and there is a time limit for filing it. For the “original contractor” (a contractor that contracts directly with the owner) it is 120 days after completion, or the date both parties agreed to terminate the contract. For every person who did not contract directly with the owner (subcontractors and suppliers), the time limit is 90 days after completion. To be safe, it is best to start counting the time from “substantial completion,” and it is important to seek legal advice about the time requirement if there are significant interruptions in the progress of the work, or if an abandonment of the project occurs.
[For non-residential projects and residential projects of five dwelling units or more, there are certain prior notice requirements for claimants who did not contract directly with the owner or the original contractor, which are set forth in NMSA 48-2-2.1. This article does not attempt to go into detail on those issues.]
Second – The Claim of Lien must include detailed information: the name of the owner, the name of the person who employed the claimant (or to whom materials were furnished), a sufficient legal description of the property to be charged with the claim of lien, and statement of the terms, time given and conditions of the contract, and an accurate statement of the amount demanded after deducting all just credits (payments) and offsets. Many claimants attach a copy of the contract as an exhibit to the claim of lien. The completeness, accuracy and sufficiency of information you provide in your claim of lien are critical to the validity and enforceability of the claim of lien. This is another good reason you should consult a local attorney or lien expert service familiar with New Mexico’s lien law. You must be careful to include only items for which the work has been completed in the calculations for the lien. The statute says “after deducting all just credits and offsets.” If the work isn’t finished, or the general contractor knows final payment includes work a sub hasn’t finished, that amount should not be included in the lien, and a credit must be given for all payments. You should always check your calculations carefully to be sure you can justify the amount of your demand in the claim of lien.
Third –The claim of lien must be signed in the presence of a notary public, and the notary must complete a proper verification on the claim of lien. This means that the party signing the claim of lien is signing under oath to the accuracy of the contents of the claim of lien. Inaccurate or false information in the claim of lien, particularly if it were known to be false, could result in liability for the person signing the claim of lien. The notary will also complete a separate acknowledgement on the claim of lien (which is different than in the “verification” or “oath), depending upon the structure of your business, either as a “natural person” (sole owner), a partnership, or a corporation. You may assign responsibility to someone else to act as an attorney-in-fact, and that would require a different type of notary acknowledgement. Remember — a notary just acknowledges the identity of the person signing the document, and does not provide advice on the contents of the document.
What If You Don’t Get It Right?
One of the pitfalls of failing to properly file a Mechanic’s Lien is not only the danger of having the lien found invalid and unenforceable, but also you could provide the property owner grounds to file a counterclaim or lawsuit for a “slander of title.” “Slander of title” occurs when someone, without the privilege to do so, willfully records or publishes information which is untrue and disparaging to another’s title property rights. Under this cause of action, the property owner may recover damages and legal costs based upon a malicious filing of a claim of lien if the owner can prove that damage was actually caused by the filing. The potential for damage should not be underestimated: lien claims may be picked up by credit reporting agencies and may show on an owner’s credit report, resulting in real problems for the owner. In this day when everything from car insurance rates to credit card interest rates are tied to credit scores, it’s not hard to imagine how easily an owner could prove damage.
This article is intended to be generally informative and not intended to give legal advice. You are advised to seek legal counsel. For those of you wishing to read the actual text of the statute, the text for Mechanics’ and Materialmen’s Liens and the Stop Notice Act are on the web at http://www.conwaygreene.com/nmsu/lpext.dll?f=templates&fn=main-h.htm&2.0. Double-click on New Mexico Statutes and Court Rules, then double-click again on Statutory Chapters in New Mexico and scroll down to Chapter 48. Choose either 48-2 for the Mechanic’s and Materialmen’s Liens, or 48-2A for Stop Notice Act.