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Recent Mechanic’s Lien Decisions That Surveyors Need To Know

One indication that the economy may be improving is that our office is getting questions on mechanic’s liens from the various trades.  Mechanic’s lien laws are meant to protect your right to be paid.  There have been a couple of Supreme Court and Court of Appeals decisions in the last few years that surveyors should keep in mind if they wish to be paid for their work.

First, as a refresher, everyone should include a Pre-Lien Notice in their Contract with the owner.  If the surveyor is a subcontractor, the Pre-Lien Notice needs to be sent to the owner of the property within 45 days of the surveyor’s first work.  If you would like an updated copy of either the Contractor Pre-Lien Notice, which is to be included in your Contract, or the Sub-Contractor Pre-Lien Notice, which is to be served by certified mail, please email your request to Dmeyers@rinkenoonan.com.

If the work is completed and you are not paid, you need to file a Mechanic’s Lien Statement and have the Statement served on the owner, within 120 days of the last date of your work.  If the lien is not paid, you have one year from the last date of work to start a lawsuit to foreclose the mechanic’s lien.

With these basics, the following cases should be understood.

  1. Metro Land Surveying & Engineering Company, Inc. v. John Matthews, et al., Case No. A09-1533 (Minn. Ct. App. 18, 2010). (unpublished)

In this case, the surveyor had ongoing contracts with a land developer.  One of the land developer’s companies entered into a Purchase Agreement to buy 230 acres of land for development purposes, with a contingency that required a wetland delineation and topographical survey to be performed at the developer’s expense.  The surveyor did the work, but the land deal fell through.  The surveyor filed a mechanic’s lien, and started a mechanic’s lien foreclosure lawsuit.  The landowner claimed that the surveyor failed to provide a Pre-Lien Notice and the landowner did not benefit from the surveyor’s work.  The Court of Appeals ruled in favor of the surveyor based on evidence that the landowner knew surveying work was being done, and the landowner failed to give notice to the surveyor that the landowner would not be responsible to pay for any work.  Minn. Stat. § 514.06 allows a landowner who has not authorized work, to avoid mechanic’s lien liability by notifying the persons doing the work in writing that the landowner is not responsible for payment.  The Court also ruled that a Pre-Lien Notice was not necessary because the surveyor had not contracted with any subcontractors or materialmen.

The lesson for surveyors is to make sure that all property owners know that the surveyor is doing work.  This can be a letter, email or some other written evidence putting the property owner on notice.  Surveyors should also include the Pre-Lien Notice in their Contract, and send the subcontractor Pre-Lien Notice to the property owner.  The subcontractor Pre-Lien Notice serves as additional evidence of notice to the owner that the surveyor is doing work.

  1. Premier Bank vs. Becker Development, LLC, et al., (Case Nos. A08-1252 and A08-1700) 785 N.W.2d 753 (Minn. 2010)

The facts in this case were typical of large single family developments.  The excavator, surveyor and many others performed a variety of services on a 59 lot proposed development.  None were paid, and all filed mechanic’s liens against the entire development, including all 59 lots.  There was a construction mortgage, filed against the raw land prior to work being done, so that mortgage had priority over the mechanic’s liens.  However, three of the lots had been sold, and the mechanic’s liens would have priority over the subsequent mortgages on those three lots.

As was typical for the time, when the subcontractors were not paid they commenced a mechanic’s lien foreclosure lawsuit against only the three sold lots, without including the other 56 lots.

The Supreme Court ruled in favor of the mortgage company stating that since the lienholders had filed their lien against all 59 lots, they had to foreclose their lien against all 59 lots.  They could not, as had been prior practice, foreclose their entire lien only against the lots where they knew they would be paid.  The liens had to be pro rata spread across all 59 lots.

I am not sure many surveyors in their right mind today, having lived to the past five years, would ever agree to extend tens of thousands of dollars of credit on a 59 lot residential development.  If the surveyor were to advance credit, they would need to keep in mind that their mechanic’s lien might not be prior to a mortgage, and they may have to settle for payment pro rata against each lot.

  1. Big Lake Lumber, Inc. vs. Security Property Investments, Inc., (Case No. A11-2220) 836 N.W. 2d 359 (Minn. 2013)

In 2005 the property owner cut trees, did some staking and prepared a lot for a spec home.  Nothing was done for over a year, when a bank recorded a mortgage against the property.  Construction then began on the home.  The sub-contractors and contractor were not paid, filed mechanic’s liens and started the foreclosure lawsuit.

The lender argued that the interruption in time between the original work, and the actual construction of the home divided the project, so that the home construction was separate from the initial work.  The Supreme Court ruled that all of the work, even with the interruption, was done toward the construction of the home, so that the mechanic’s lien would all date back to the first date of work, and have priority over the mortgage.

This decision is helpful for subcontractors.  So long as the initial work relates to the end construction, it will be viewed as one entire project.

  1. Riverview Muir Doran, LLC vs. Jadt Development Group, LLC, (Case No. A08-312) 790 N.W. 2d 167 (Minn. 2010)

This was another of those big idea projects that literally never got off the ground.  The architect did a substantial amount of preliminary work.  The Title Company and Bank later placed a mortgage on the property and paid all of the outstanding bills, including the outstanding invoices due the architect.  The architect continued to do the work, the project never went forward and the architect filed a mechanic’s lien.

Ruling on technical mechanic’s lien language, the Supreme Court said that because there was no visible work on the ground, and no evidence that the Title Company or Bank had actual knowledge or recorded notice that the architect was continuing to do work, that the architect’s mechanic’s lien was not valid.

The rule for surveyors is that if you are doing non-staking work or other activity not visible on the ground, and you wish to be paid, you need to give written notice to the lender that you claim lien rights.

 

Summary

Mechanic’s liens are extremely helpful in getting paid, but they are also very technical.  Everyone in the construction business needs a basic understanding of mechanic’s lien laws, and how they can use lien laws to protect their right to payment.  The sub-contractors and builders in the cases I have listed lost hundreds of thousands of dollars because they did not properly follow the mechanic’s lien laws to protect their right to payment.

 

Last Issues Article

In the Fall, 2013 issue of Minnesota Surveyor, I wrote an article on legal descriptions, which was followed by a Response from surveyor Dan Fisher.  The article should have stated that Dan is a very good friend of mine and excellent surveyor.  I knew he would take issue with some of  my comments, so I showed him a draft of my article before it went to publication.  After I got his Response, I asked the Minnesota Surveyor magazine to publish it with my article.

I always enjoy working with Dan, even though sometimes we disagree.  I thought his Response was thoughtful and well written.  I appreciate his willingness to allow it to be published.

©2013 David J. Meyers and Rinke Noonan Law Firm.

David J. Meyers is a partner with the Rinke Noonan Law Firm, St. Cloud, Minnesota.  He is certified as a Real Property Law Specialist by the Minnesota State Bar Association.  He is the Examiner of Titles for five Minnesota counties.