The mechanic’s lien process
We often counsel consumer and commercial clients on property rights. Often, those discussions begin with a primer on property law. This blog entry breaks down mechanic’s liens. In prior entries, we first discussed types of ownership estates as well as the method of ownership and then discussed the forms of deeds, mortgage rights and responsibilities. In subsequent weeks we will post entries on construction projects and surety bonds. If you find these articles helpful, or if you have additional questions, please don’t hesitate to contact us.
- Real Estate
As many contractors and subcontractors know, despite high quality work, sometimes the property owner fails to pay for the work or materials. Contractors and sub-contractors may obtain a lien on the property where they provided labor or materials via a mechanic’s lien. Indiana Code § 32-28-3 et seq. sets forth the procedure for obtaining payment from a recalcitrant client.
For the uninitiated, the mechanic’s lien statute generally provides that when property is improved through the application of labor or services, then the party providing such labor or services may place a lien on the property to compel payment. (Ind. Code § 32-28-3-1).
Mechanic’s liens may be obtained on real estate for the improvement of the property. For the alteration or repair of an owner-occupied single or double family dwelling, the putative lienholder must send written notice of the delivery of materials or work to home owner within 30 days of the first delivery or work performed. This pre-lien notice notifies the homeowner of work being done that could later result in a notice of intention to hold a lien. A mechanic’s lien filed without providing the required pre-lien notice is not enforceable, and will be stricken.
In the event a contractor does intend to file a lien, notice of the intent to file a lien must be filed with the recorder in the county where the property is located within 60 days of last performing work or delivering materials for residential property, and within 90 days of last performing work or delivering materials on non-residential property.
Once the notice is filed, the lienholder has one year to file suit to enforce the lien. If the lienholder does not file suit within a year, its lien rights expire and are not enforceable.
- Recovery of costs incurred to obtain a mechanic’s lien
Importantly, the mechanic’s lien statute provides that the lienholder shall also recover attorney’s fees and the cost of collection. See Clark v. Hunter, 861 N.E.2d 1202, 1209 (Ind. Ct. App. 2007) (award of reasonable attorney’s fees is mandatory). The recovery of attorney’s fees is important among other reasons because (1) construction disputes can be fact intensive and therefore expensive, and (2) the owner often has the “deep pockets” and can wear down the unpaid lienholder.
Often, a payment dispute arises between the general contractor and a sub-contractor, not the property owner and general contractor. An owner of property can avoid liability for attorney fees by paying the general contractor the full amount due under the contract. (Ind. Code § 32-28-3-14(b)).
Recently, the Indiana Supreme Court considered a case in which the owner paid its general contractor, the general did not pay its subcontractors, and the subcontractors filed contract claims against the general and a mechanic’s lien foreclosure claim against the owner. The owner paid the full amount owed to its general, and the general filed a surety bond to remove the lien.
The general claimed that because the owner paid the contractual amount owed, and the surety bond removed the lien, that the subcontractor could not recover its attorney’s fees.
The Indiana Supreme Court held “it would be an unfair and certainly unintended result if … a general contractor could post a surety bond and avoid paying the attorney’s fees that it would otherwise have to pay if a subcontractor foreclosed on a lien, thereby leaving the subcontractor in a worse position than if it had foreclosed—especially when the subcontractor cannot object to the posting of a surety bond.” Goodrich Quality Theaters, Inc. v. Fostcorp Heating and Cooling, Inc., 39 N.E.3d 660, 665 (Ind. 2015).
The Indiana Supreme Court went on to hold that “it is therefore only fair that the subcontractor lienholders be fully protected and allowed to recover attorney’s fees … upon [general contractor] Roncelli’s filing of the undertaking and posting of the surety bond.” Id.
In the end, the court decided that so long as the subcontractor was right (that it was entitled to be paid), then the subcontractor is also entitled to recover its attorney’s fees. As a result, subcontractors retain this necessary tool in a dispute to collect its rights.
- Mechanic’s liens on motor vehicles
In Indiana, there are two types of mechanic’s liens related to motor vehicles, possessory (see IC § 9-22-6-1 through 3) and non-possessory (see IC § 32-33-10-1 through 10) (which includes motor vehicles as well as airplanes, construction machinery and equipment and farm machinery). The primary difference between a possessory lien and a non-possessory lien lies in perfection and foreclosure. Hendrickson & Sons Motor Co. v. Osha, 331 N.E.2d 743, 754 (Ind. 1975). A possessory mechanic’s lien on a motor vehicle is perfected by retention or possession of the vehicle by the person asserting the lien. Gangloff Indus., Inc. v. Generic Fin. & Leasing, Corp, 907 N.E.2d 1059, 1066 (Ind. Ct. App. 2009). A possessory mechanic’s lien is foreclosed “by sale without judicial process [and up]on notice to the owner.” Hendrickson, 331 N.E.2d at 754.
a. Possessory Liens
A company that performs labor, furnishes storage or provides towing services at the request of the person that owns the vehicle, has a mechanic’s lien on the vehicle if: (a) the charges incurred are not paid; and (b) the motor vehicle is not claimed. If both (a) and (b) do not occur within thirty (30) days after obtaining possession of the vehicle, then the company that performed the services has a lien and may advertise the vehicle for sale. The vehicle may not be advertised for sale until thirty days after the vehicle was left in or came into possession of the mechanic. The sale must then be advertised in a newspaper of general circulation in the city or town in which the mechanic’s “place of business” is located and the advertisement/notice must at least 15 days before the sale. The vehicle may not be sold earlier than fifteen (15) days after the date the advertisement appears. If the lienholder is located outside the corporate limits of a city or a town, the advertisement must be placed in a newspaper of general circulation in the county in which the place of business of the lienholder is located. In addition to the advertisement, the company asserting a mechanic’s lien must also notify the owner of the vehicle and any lienholder that the vehicle will be sold at a public auction to satisfy the mechanic’s lien imposed by the statute. See Sperro LLC v. Ford Motor Credit Co. LLC, 64 N.E.3d 235, 247 (Ind. Ct. App. 2016).
b. Nonpossessory Liens (motor vehicles, airplanes, construction machinery and equipment and farm machinery)
Like possessory liens, nonpossessory liens may be acquired for towing, repair, service, or maintenance work. Nonpossessory liens are governed by Ind. Code § 32-33-10 et seq. A notice of intention to hold the lien must be filed in the county recorder’s office of the county where the relevant service was performed. The notice must specifically state the amount claimed and give a substantial description of the item upon which the lien is asserted. The notice must be filed within 60 days after furnishing the relevant services or materials.
A complaint to foreclose the lien must be filed within one year of filing the notice of intention to hold the lien.
- Additional liens on personal property
Indiana also provides for additional liens on particularized personal property. The liens and relevant statutes are as follows:
Ind. Code § 32-33-1 et seq.
|Transfer, Moving, and Storage Liens
Ind. Code § 32-33-11 et seq.
|Boats and other Watercraft Liens
Ind. Code § 32-33-2 et seq.
|Mechanized Agricultural Services Lien
Ind. Code § 32-33-12 et seq.
|Cleaning Lien for Services on and Storage of Clothing and Household Goods
Ind. Code § 32-33-3 et seq.
|Watchmaker and Jeweler Liens
Ind. Code § 32-33-13 et seq.
Ind. Code § 32-33-4 et seq.
Ind. Code § 32-33-14 et seq.
Ind. Code § 32-33-5 et seq.
|Electronic Home Entertainment Equipment Lien
Ind. Code § 32-33-15 et seq.
Ind. Code § 32-33-6 et seq.
|Liens on Dies, Molds, Forms, and Patterns
Ind. Code § 32-33-16 et seq.
|Livestock Care and Feeding Liens
Ind. Code § 32-33-8 et seq.
|Corporate Employee’s Liens
Ind. Code § 32-33-17 et seq.
|Mechanics’ and Tradesman’s Liens
Ind. Code § 32-33-9 et seq.
|Common Law Liens
Ind. Code § 32-33-18 et seq.
|Special Tool Liens
Ind. Code § 32-33-20 et seq.
For a thorough discussion of these issues, or if you have other questions regarding your property rights, please contact Melissa DeGroff, Harley Means, Jen Watt, Steve Runyan, or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
Also, check out our Doing Business in Indiana: A Reference Guide to Business Law in the Hoosier State for more information on various laws of the State of Indiana as of January 1, 2017.
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