Washington Mechanic’s Liens: How Recent Changes Impact Contractors
Construction contracting is a complex business. Whether you are the owner, contractor, or general contractor on a project, your attention must shift between numerous moving parts, regulatory requirements, and deadlines as the project progresses. At the same time, contractors and their subs need confidence that they will be paid for their work. When payment issues arise, it is time-consuming and expensive to litigate disputes.
What Is a Lien?
A lien is like a mortgage. When filed, it attaches to a property’s title and hinders the property owner from selling the property before paying the lienholder. The purpose of Washington’s lien statute is to promote the development of undeveloped property by giving workers a legal interest in the developed land until paid. For contractors, while a lien does not guarantee payment, it is an effective tool to force payment against an unwilling owner. It is imperative to understand the implications of a lien and how to deal with one.
How Do You Get a Lien?
There are four steps to securing and enforcing a lien: (1) sending a Notice to Customer where required; (2) sending a Pre-Claim Notice of Right to a Lien; (3) filing/recording a Notice of Claim of Lien; and (4) foreclosing the lien.
Step One – Notice to Customer
Washington requires the contractor to provide a disclosure statement to the customer if the project involves either of the following:
(a) Four or fewer residential units or accessary structures on residential property, and the bid or contract price is at least $1,000; or
(b) A commercial building, and the bid or contract price is between $1,000 and $60,000.
The contractor must provide a disclosure statement before starting work and keep a signed copy on file for at least three years. However, no disclosure statement is required if you are contracting with another contractor or items (a) or (b) above do not apply to your project.
Step Two – Pre-Claim Notice
Washington requires you to serve Pre-Claim Notices of Right to a Lien. Whom you send the notice to depends upon the type of project and contract you have. For commercial projects, you must serve the property owner and any mortgagees, as well as the prime contractor. However, you are not required to give this notice if any of the following are true:
(a) You contracted directly with the owner or his or her agent;
(b) You contracted directly with the prime contractor;
(c) Your lien would only be for labor performed; or
(d) You subcontracted with the prime contractor.
Projects on existing owner-occupied, single-family residences require notice be served to the owner and any mortgagees of the property, unless you contracted directly with the owner-occupier or his or her agent.
Notices of Right to a Lien must be served either (a) via certified or registered mail with return receipt requested or (b) personally, with a receipt or affidavit of service. While the notice can be sent anytime, it only covers work provided 60 days after the delivery or mailing of the notice; for new construction of single-family residences, this period is 10 days. Thus, for the lien to be most effective, notice should be sent before or immediately after starting work.
Step Three – File a Notice of Claim
Washington next requires you to record the lien by filing a Notice of Claim of Lien in the county where the project property is located. The notice must include the following:
(1) Your name, phone number, and address;
(2) The first and last date that either
(a) you furnished labor, services, materials, or equipment; or
(b) employee benefit contributions were due;
(3) The name of the customer who owes payment;
(4) The street address, legal description, or other description of the property that would identify its location to a person familiar with the area;
(5) The name of the property owner, if known; and
(6) The principal amount for which the lien is claimed.
You must file this notice within 90 days of the last day (a) you provided labor, services, materials, or equipment or (b) on which employee benefit contributions were due. After filing, you have 14 days to serve the property owner. You must serve the property owner either (a) via certified or registered mail with return receipt requested or (b) personally, with a receipt or affidavit of service. Failure to serve the property owner within 14 days results in forfeiting your ability to recover litigation costs and attorney’s fees when you enforce your lien.
Step Four – Foreclose the Lien
Once you have recorded the lien, you have eight months to file a lawsuit to foreclose the lien. While there are exceptions to the eight-month limit, it is best not to wait. If the lawsuit goes beyond two years, a judge may dismiss the claim and cancel the lien.
What If Someone Files a Lien against Me?
An owner or prime contractor can bond around a lien by obtaining a surety bond under the following requirements:
- If the disputed amount is $10,000 or over, then 150% of the lien amount.
- If the disputed amount is $10,000 or less, then $5,000 or twice the amount of the lien.
The lien attaches to the bond and releases the property. The lien foreclosure proceeds as normal; however, the surety must be added as a party to the lien foreclosure action.
In response to a lien that appears to be frivolous, a party can request a show cause hearing where the applicant must show that the lien is frivolous and “made without reasonable cause” or is “clearly excessive.”
If the lien claimant fails to show, the lien will be released. However, legally speaking, “frivolous” means that the lien “presents no debatable issue and is so devoid of merit that it has no possibility of success.” In the event a lien is found to be frivolous, the prevailing party may get reasonable attorney’s fees and costs.
A private owner may also sue against a contractor’s registration bond. There is a two-year statute of limitation on homeowners and a one-year statute of limitation on all other owners. Residential homeowners are entitled to recover the entire bond amount, while other claimants are entitled to half of the bond amount or $4,000 in the case of a subcontractor or specialty contractor. Additionally, claimants are entitled to attorney’s fees up to the amount of the bond.