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OP-ED: Improper Liens Can Potentially Be Discharged Quickly Via Little-Used Statute

Daily Journal of Commerce Oregon

September 17, 2021

Overview

In 1997, misguided individuals initiated a practice of recording liens against the homes of public officials and other public figures. Every county in Oregon has a system for recording information about property ownership rights. A lien is a limitation on the property ownership rights. A mortgage is an example of a lien and so is a contractor’s lien. Both of those liens operate to secure payment by permitting the lien holder to force a sale of the property against which they are recorded.

The improperly recorded liens obviously created hardships, and the Oregon Legislature intervened to promptly address the misuse of the public recording system used to establish such liens. In so acting, the Legislature had to balance the rights of people with valid liens, such as unpaid construction contractors, with the rights of people wrongfully subjected to frivolous liens.

In so striking this balance, the Legislature chose to distinguish between public officials and the rest of the public. It first defined an improper lien as an “invalid claim of encumbrance.” It then provided that a public official can automatically remove an invalid claim of encumbrance by providing notice that the lien was invalid, consistently with a statutory notice procedure. This is a powerful tool that immediately addresses the politically motivated attacks that had been made on some public officials.

But the Legislature did not leave out the rest of the population. Although it required more than a mere notice, it provided a procedure allowing any person to promptly challenge an invalid claim of encumbrance. This challenge requires the person to go to court. But instead of being required to file and endure an entire lawsuit, a person who seeks to challenge an invalid lien through a rapid procedure essentially demands trial within a month of filing. For context, state courts typically aim to have cases go to trial within a year of filing.

Another area the Legislature sought to balance was the type of liens that could be challenged. For example, the Legislature provided that the procedure to rapidly challenge a lien could not be utilized against certain financial institutions and insurers. Likewise, the challenge is not permitted against government agencies that record liens.

These exceptions leave in play a large body of potential liens that might be challenged. A construction contractor’s lien can be challenged using this process. Construction liens are powerful tools that contractors can use to enforce their payment rights. However, those powerful rights are subject to strict requirements. Contractors must meet timing and notice obligations to properly record a lien against property. If a contractor fails to satisfy any of those deadlines and attempts to record a lien against property, such a lien is subject to the prompt process set forth by the Legislature to challenge invalid liens.

A notice of lis pendens can be challenged by the rapid process as well. A notice of lis pendens is a notice that isrecorded against property to alert the world that a lawsuit involving an interest in real property is taking place. Anyone who buys the property subject to the notice of lis pendens does so subject to the ongoing lawsuit. Notices of lis pendens accordingly bind property to the lawsuit that is filed during the life of the lawsuit. That powerful tool can operate to harm a property owner because the owner may not be able to sell the property or use the equity in the property for financial benefit.

However, a notice of lis pendens is permitted only when an interest in real property is at issue in a lawsuit. So the notice cannot be used to alert the world to any lawsuit at all. When a person records a notice of lis pendens for any reason other than to signal a dispute over an interest in real property, the notice of lis pendens can be promptly discharged.

These powerful tools – construction liens and notices of lis pendens – are examples of liens that are subject to rapid challenge. These rapid challenges have not been utilized frequently, in part because they are not proper for every situation. Success challenging a construction lien or lis pendens does not typically make the underlying dispute go away. The contractor that loses its lien rights may still have the right to be paid. Likewise, if a notice of lis pendens is terminated, the underlying dispute may still remain.

Notwithstanding these limitations, the termination of a lien can shift the risks the parties face in the litigation and tilt the resolution posture in favor of one party or the other. Parties involved in disputes where a lien is implicated should consider whether rapidly challenging such a lien is strategically wise under the circumstances.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

Column first appeared in the Oregon Daily Journal of Commerce on September17, 2021.

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