Kansas Mechanic's Lien

In a recent decision the Kansas Supreme Court ruled the failure to properly recite the correct legal name of the general contractor was determined to be a fatal to the enforceability of a mechanics’ lien.  The confusion was between the name of Merit General Contractors, Inc., the name of the filed mechanic’s lien and the correct name of the general contractor which was Merit General Constructors, Inc.

Now tell me this type of distinction should cause the complete invalidation of the mechanics lien? Well, in Kansas it will!!!

Mechanic's Lien in Kansas

A new case in Kansas that should be read by everyone...courtesy of Doug Weems of SFBB! Court of Appeals of Kansas.

TRADESMEN INTERNATIONAL, INC., Appellee/Cross-appellant,
v.
WAL-MART REAL ESTATE BUSINESS TRUST; Wal-Mart Stores, Inc.; Merit General
Contractors, Inc.; and Centennial Insurance Company, Appellants/Cross-
Appellees,
and
Construction Services Corp. and Derstler Lumber Co., Inc., Defendants.
No. 93,410.
March 3, 2006.

Syllabus by the Court
1. K.S.A. 60-1105(b) authorizes amendment of a mechanic's lien statement by leave of the court and in the furtherance of justice as long as the lien amount is not increased. Nevertheless, the trial court may not allow amendment of a vitally defective mechanic's lien statement after the statutory period for filing a valid mechanic's lien has expired.

2. Mechanics' liens are statutory and can only be created in the manner set forth in the statutes. Parties claiming a mechanic's lien have the burden of bringing themselves within the statute.

3. Although the mechanics' lien statutory provisions are liberally construed once a lien attaches, the requirements for a lien to come into existence must be strictly met.

4. K.S.A. 60-1103(a)(1) requires that a mechanic's lien statement filed by a subcontractor state the name of the contractor.

5. There is no privity of contract between a subcontractor and a property owner, and a subcontractor can obtain a lien only by complying with the statutory provisions.

6. A mechanic's lien statement filed by a subcontractor which fails to state the name of the contractor is fatally defective.

7. Under the facts of this case, the mechanic's lien statement filed by the subcontractor was vitally defective because it failed to name the correct contractor. Because no mechanic's lien was created by the vitally defective lien statement, the plaintiff should not have been allowed to amend the lien statement to name the proper contractor after the statutory period for filing a mechanic's lien statement had expired.

8. In this case, the plaintiff was a proper claimant under the payment bond, which extended coverage to all persons or entities as supp

Doug Weems
Spencer Fane Britt & Browne, LLP
1000 Walnut, Suite 1400
Kansas City, MO 64106
(816) 292-8264
(816) 474-3216 (facsimile)
dweems@spencerfane.com
www.spencerfane.com

What does this mean? The case states what is known...if the mechanic's lien is defective, no amendment will be allowed after the statutory filing period has expired.

Changes in lien laws in North Carolina

A great article is attached below on recent changes to the lien laws in North Carolina: Below is a reprint of a recent online e-lert sent to Lien Law Online subscriber's concerning an important Supreme Court decision.  To insure that you receive this type of timely information in the future, subscribe to Lien Law Online now.
		Lien Law Online eLert - Sent to subscribers:  01-30-2006 State of North Carolina - Effective Immediately
1/30/2006 Last week, the North Carolina Supreme Court rendered a decision in O & M INDUSTRIES v. SMITH ENGINEERING COMPANY (No.502PA04) that clearly determines the issue of payment over (in disregard of) a Notice of Claim of Lien on Funds-an issue that has been in the law for some time, but one that the Supreme Court has not ruled on before. The main point of the decision is that once a general contractor or owner receives a Notice of Claim of Lien on Funds (or Claim of Lien on Funds as revised in 2005), the recipient of the notice incurs personal liability by the mere act of making payment to the lien claimant's debtor, without making provision to see that the claimant is paid. This holds true even in the case where the notice recipient retains sufficient funds to cover the claim of lien on funds. When presented with a Claim of Lien on Funds, caution is warranted so as not to incur personal liability (having to pay for the amount twice!) 01-30-16 Click here to visit LienlawOnline.com now!

Arkansas lien laws

ALERT....ALERT....ALERT....ARKANSAS ALERT.....!

Our friends in Arkansas have amended their mechanic's lien laws...I am headed to the books to figure out what has happened.

Anyone out there from Arkansas who can help us with an outline of what has happened?

New Missouri cases dealing with mechanic's liens and covenants not to compete

In a continuing saga of support for the liberal interpretation of the Missouri mechanic lien statute, the Missouri Court of Appeals in Bolivar Insulation Company v. Bella Pointe Development, LLC ruled that the statute does NOT require the statement to identify the exact date work was performed or material provided. Truly a decision favorable for contractors.....would the same result be found if the case was filed in Kansas? Probably not.

Also interesting to note the Court of Appeals in Health Care Services of the Ozarks v. Copeland again supported the long standing notion that covenants against competition are not favorites of the law. The court noted only trade secrets and customer contacts are to be protected with such agreements, but only if the same is reasonable as to time and place.  In this case the Court of Appeals found the former employees did not try to exert influence over former clients, nor did they possess trade secrets so the agreements would not be deemed enforceable.

Well....contractors batted .500 in the Court of Appeals this month!

Mechanic's Lien Law Change

In Kansas as of July 1 the effective date for the enforcement of liens has been changed. Where multiple liens exist, the effective date will be the earliest of the unpaid lien, meaning that if a lien becomes satisfied or paid, then the effective date will become the date upon which the earliest unpaid lien was filed. Remember when all you had to do is look to the earliest filed lien? Not that simple any more........

Missouri Mechanic's Liens

A Missouri Court ruled that mechanic's liens are to be liberally construed. (Lake Ozark Construction Industries, Inc. v. Osage Land Company (Mo. App. 2005). Why is this so important. A mechanic lien often has mistakes to it and this Court will allow liens to be judicially rehabilitated to make sure people get paid for time and materials. Now in Kansas................

The last day for filing a mechanic's lien

A nice point to remember in filing a mechanic's lien as found on the National Lien and Bond Claim Systems website:

Tip on Lien Filling:

"Make sure the last day of work used to calculate deadlines is the last day you performed actual contract work. Going back to the jobsite to correct work that did not comply with contract specifications may not extend time to file a lien."

IRS vs. mechanic's lien

An interesting article found on the National Lien Law and Bond Claim System website:

“I Can’t Pay You, I Owe the IRS."
by William J. Broderick
Emalfarb, Swan, and Bain

State laws defining "property" and federal laws establishing lien priorities may permit payment to a mechanics lienor before the IRS.

As April 15 approaches, attention focuses on the Internal Revenue Service. Although the IRS has powerful collection tools at its disposal, in many respects, it is just like any other creditor that must take affirmative steps to assert its rights and priorities to certain construction funds against competing creditors. Tax liens should never discourage a subcontractor or material supplier from pursuing Mechanic Lien rights.

A federal tax lien is an encumbrance in favor of one party (the IRS) upon the property of another (a taxpayer). This lien attaches to "all property and rights to property,” belonging to a delinquent taxpayer and arises when the taxpayer fails to pay any tax after a demand by the IRS for payment.

The lien itself, sometimes called a "secret lien" or “silent lien,” exists automatically and can be perfected against the interests of a taxpayer even without the filing of a notice. The lien "relates back," becoming effective on the date of the initial tax assessment against the taxpayer, and continues in force until the assessment is satisfied or becomes unenforceable after expiration of a ten year statute of limitations on collections by the IRS.

While a silent lien may exist against the taxpayer, the lien is not valid against the interest of a mechanics lien claimant until the IRS publicly announces the existence of the lien by properly recording a notice.

A potential mechanics lien claimant can defeat an IRS lien under the following circumstances: 1) deficiencies in the IRS lien itself may make the document “self-defeating;” 2) state law may except the tax lien from affecting the property; and 3) federal law may prioritize the mechanics lien over the IRS lien.

Technicalities. Technical errors or deficiencies in the tax lien document or underlying claim may defeat an IRS lien. Mechanic lienors are painfully aware that the slightest error in a recorded document could defeat an entire lien claim. Likewise, the IRS has strict time periods to make an assessment and record its Notice of Lien in the proper county. If these steps are not properly or timely taken, the entire IRS lien itself may be invalid.

Property at Issue. State law determines what constitutes the taxpayer’s “property.” If a General Contractor ("GC") owes both the IRS and a mechanics lien claimant, state law defines what is, and what is not, the property of the GC. Provisions in state law may declare that money held by, or owed to, the GC is not the property of the GC and is therefore not subject to an IRS lien against the GC's property. For example, payments from an owner to a GC, for the work of a subcontractor, are not the GC’s property in some states. “Trust fund” provisions may determine that the GC is merely holding the funds for the benefit of the subcontractor. Because the delinquent taxpayer (GC) has no right to the project money, the tax lien has nothing to which it can attach.

Priority. Once state law concludes that there is taxpayer property to attach, a mechanics lien may still have priority over the IRS. The priority of a federal tax lien as against state-created mechanics liens is governed by the common law rule of "first in time, first in right." Thus, determining priority between federal tax liens and state mechanics liens is, quite simply, determining which lien was perfected first. Remember: a federal tax lien is not perfected and not entitled to priority over a mechanics lien until notice of the tax lien has been filed.

Examples. An IRS lien is recorded July 1. If the underlying contract of the mechanics lien claim was entered into by the lien claimant August 1, then the IRS should have priority over the mechanics lien claimant. However, the mechanics lien claimant enters a contract and starts work April 1, completes May 1, and a records a mechanics lien June 1, then the lien claimant should have priority as "first in time, first in right" over the IRS lien recorded July 1.

The fun part starts if the mechanics lien claimant enters a contract and starts work April 1, completes August 1, and records a mechanics lien timely on September 1. As noted in the last newsletter, the law of the state in which the work is performed determines whether a lien is inchoate and choate. An inchoate lien arises as soon as a contractor begins work or supplies materials to the project. In this example, an inchoate lien state should provide that the mechanics lien arose April 1 and would have priority over the IRS lien perfected July 1. A choate lien state is one that requires an overt step to establish the lien. Because the choate mechanics lien did not arise until its filing September 1, it would not have priority over an IRS lien perfected July 1.

Loophole: Finally, there is an important exception that applies to smaller residential projects. Even if properly noticed, a federal tax lien is not valid against a mechanics lien that repaired or improved certain residential property if the contract price with the owner is not more than $ 6,020, $5,000 prior to 2005 (26 USC 6323 (b)(7)).

Bottom Line: Be sure to take the steps to timely perfect mechanics lien rights under local state law regardless of the existence of a tax lien. The intersection of federal tax law and individual state mechanic liens is a complicated area requiring competent legal assistance. Assert your statutory lien rights first, ask the complicated interests and priority questions later."

The real bottom line: check the IRS lien closely and find ways to defeat it based upon deficiencies in the lien its....but how often will you be successful in this attempt? Not often by my count...but to quote the ancient Russian maxim in questioning anothers efforts, in this case the IRS, "trust but verify"!