VALIDITY OF CONTRACTOR LIENS NOW IN DOUBT

Date: May 26th, 2010

A new case from the Washington court of appeals casts doubt on the validity of many existing contractor liens.  The volume of those cases is likely to escalate dramatically in the weeks and months ahead.

Contractor liens are, of course, the primary vehicle for contractors, subs and suppliers to secure payment when they provide work or materials to a private project.  Washington”s Mechanic”s Lien statutes give contractors the right to file a claim of lien against the real property they improve, and to foreclose on that property for any amounts they are owed.

The Washington legislature enacted the current set of Mechanics Lien statutes in 1991.  As part of those statutes the Legislature included a lien form for contractors to use.  The statutes declare that a claim of lien substantially the same as the form in the statute “shall be sufficient.”  However, the statutes also provide that a lien claim is to meet certain “acknowledgment” requirements, which the court in the new case found were different from what the lien form provided.

As a result of the new case, no one can now safely use the statutory lien form.  In fact, all existing liens that used the statutory form are subject to being contested.  No one will know, without more lawsuits and appellate decisions, which of them will ultimately be declared invalid or which will be upheld.

The case that throws them all into doubt started in 2004, when contractor Athletic Field performed site preparation work for developer Williams.  The parties didn”t have a written contract, and got into a fight over how much work the contractor had performed and what was owed for that work.  The contractor arranged for a lien filing service to prepare and record a mechanics lien for $276,825.  The owner started a lawsuit disputing the lien.

The contractor”s lien filing service had used the form of lien in the statute for Athletic Field”s lien.  It was signed by an employee at the lien filing service company.  But the owner nonetheless contended the lien was invalid on the theory that lien claims must be signed by the claimant or the claimant”s attorney, not an independent agent.

The trial court agreed with the owner, and declared the lien invalid.  The contractor appealed, and in 2006 the court of appeals reversed the trial court and found the claim of lien to be sufficient.  The court of appeals decision was not surprising to the construction community at the time, since lien filing services had widely been used to prepare and file liens, and their ability legally to do so had not been in serious doubt.

But nearly four years later the court of appeals reconsidered its 2006 decision and reversed itself.  In April 2010 the court of appeals withdrew its 2006 decision and issued a new decision declaring the contractor”s lien to be invalid and unenforceable.

The court of appeals relied on the mechanics lien statutes’ requirement that a lien claim filed by a corporation be notarized with a corporate notary form.  Because Athletic Field had used the lien form provided in the statute without adding a corporate notary block, the court of appeals ruled that the contractor”s lien was invalid.

At a minimum, contractors, subs and others who want to protect their lien rights should consult with counsel familiar with the Athletic Field case to get advice on how to file liens that will be safe from attack.