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You might be shocked to hear that frivolous lawsuits exist throughout the American legal system, even extending to construction law. And while construction law is not immune to legal frivolity and other shenanigans, it must be noted that not all frivolous mechanics liens are created equally.
Mechanics lien laws are powerful, but construction professionals who are granted that power also have the responsibility to act in good faith. While an honest mistake is one thing, knowingly claiming a lien with no basis undermines the process for everyone else in the industry.
What is a frivolous mechanics lien?
While every state has its own definition, a frivolous mechanics lien is typically defined as “a lien filed without any reasonable cause, or one which has no reasonable argument for its validity.” From that definition, we can divide frivolous liens into 2 basic categories:
- Liens that are pursued in bad faith or based on a dishonest premise
- Liens that may have merit but are invalid due to an overlooked requirement or unmet deadline (or in other words, an “honest mistake”)
Taking the latter case first, filing a lien too late due to a missed deadline would cause that lien claim to be invalid. In this example, the lien filer’s claim could still be “legitimate” in the sense that, they satisfactorily performed all of the work specified in the contract and were not paid in full for that work. But because they filed late, the lien is invalid, even though the reason for invalidating the lien may seem like a technicality.
Another example of a so-called “honest mistake” is when a project participant files a lien when they don’t actually have lien rights. For example, in many cases, suppliers to suppliers do not have lien rights on construction projects. So what does a supplier to a supplier do if they get stiffed on a project?
They might assume that they can just pursue a mechanics lien, but if they are filing in a jurisdiction where suppliers to suppliers on construction projects don’t have lien rights, then their lien claim is going to automatically be invalid.
Now, in this example, was it a mistake for the supplier to the supplier to file the lien to begin with? The answer is yes, and potential lien filers must take care, because in construction law, just like in other areas of the law, ignorance of the law is not an excuse.
That doesn’t necessarily mean that the mistaken supplier in this example is going to be in any legal trouble, but it does mean that it’s on the filer to make sure the lien is filed correctly. Also, it’s on the filer to limit the amount of their claim to only items that they’re entitled to. Generally speaking this means that you cannot add interest, legal fees and other costs to your lien claim.
Additionally, including items such as unperformed work or unapproved change orders may also be considered an exaggeration in some states. The penalties for filing a false lien can be severe.
In summary, all frivolous liens are invalid, but not all invalid liens are frivolous.
What If There’s a Dispute?
Most states do not consider a lien frivolous is there is a legitimate dispute between parties on the project. It’s not uncommon in construction for the workmanship or quality of the work from a project participant to be disputed by another party on the job. However, workmanship disputes don’t necessarily prohibit a project participant from filing a lien. If a contractor made an improvement to the property, then they have lien rights, even if the opposing party is claiming that the work was substandard. If anything, the relative quality of the work may impact the amount of money that the lien filer can claim (typically settled through negotiation), not whether they have a right to file in the first place.
Another area where disputes often arise is over the project timeline, or the dates of major project milestones. Terms such as “date of last furnishing” and “date of substantial completion” along with a whole host of others come into play here, and timelines can have a huge impact on the deadlines associated with lien rights. Because lien laws are so complex, and the very nature of construction so complicated, it’s very easy for earnest disputes to arise, especially when it comes to significant milestone dates on big construction projects.
This section of the article needn’t be very long. If you’re a construction company that’s considering whether to file a lien that you know to be fraudulent – the construction law equivalent of a made up “slip and fall” personal injury case – don’t. JUST DON’T DO IT, period. Don’t do it on your own, and don’t look to Levelset for help if your case is knowingly fraudulent because that’s not how we operate. Now, one man’s fraud is another’s just cause, and as we discussed in the previous section, project participants of goodwill can have earnest disagreements as to whether work on a project was performed satisfactorily according to the contract terms. But no one should ever knowingly pursue a lien that they know to be fraudulent if for no other reason than knowingly filing a fraudulent lien can land you in some serious hot water, just like in the Florida example we mentioned earlier.
The construction industry is made up of hard-working men and women, the vast majority of whom share values that are very similar to Levelset’s core value of fairness. Lien laws are complex and the construction business is complicated. But sometimes, a construction company that’s having a payment issue on a project has a valid, legitimate claim. And when that happens, one of the smartest things that company can do is to leverage their lien rights so that they can get paid.