As we’ve noted numerous times before, a mechanics lien is a powerful tool to protect contractors from non-payment. And most contractors who use the mechanics lien process get paid well before having to enforce the lien claim. However, sometimes a lawsuit is necessary. In that case, one protection for contractors in many states is the ability to recover attorney fees and court costs if successful. While Iowa does allow this, a recent Supreme Court decision in the state limited its use in recovering against residential homestead properties.
Iowa attorney fees in a lien foreclosure
Many states provide for the award of attorney fees to the prevailing party in a mechanics lien enforcement action. The purpose of these types of statutes is to give contractors an incentive to enforce their rights in court. These laws recognize that a party asserting mechanics lien rights has likely already been financially deprived. This grants the party more leverage to assert their rights.
Not all states allow successful claimants to recover attorney fees or court costs when enforcing a mechanics lien. Depending on the unpaid amount, and the strength of a contractor’s case, foreclosing a mechanics lien is not always worth it.
In Iowa, however, they do award legal fees and costs to the successful claimant. Under Iowa Code §572.32, in a court action to enforce an Iowa mechanics lien, a prevailing plaintiff may be awarded reasonable attorney fees. However, a recent Iowa Supreme Court decision declared an interesting twist on how these fees can be collected when it comes to homestead properties.
Residential project dispute leads to foreclosure
The case in question is Standard Water Control Systems, Inc. v. Jones.
- Owner: Michael & Cori Jones (Jones)
- Contractor: Standard Water Control Systems, Inc. (Standard Water)
- Lien amount: $5,400
Jones hired Standard Water to do waterproofing work for their home basement. During the performance of the work, Standard Water struck sewerage lines (the tragic irony!) causing damage to their property.
Jones refused to let Standard Water finish the work, who subsequently sent an invoice to Jones for the work they performed. Jones refused to pay, so Standard Water filed a mechanics lien for the $5,400 outstanding. Jones still didn’t pay, so Standard filed a foreclosure action.
Attorney fees reach 9x lien amount
The court enforced Standard Water’s mechanics lien. The court stated that the amount would be reduced by $500 if Jones hired someone else to complete the waterproofing work. In addition to this award, the court granted attorneys fees and court costs. The amount? A whopping $44k in attorney fees…and court costs of $299.04.
Jones appealed. They argued that the attorney fees were unreasonable given the judgment amount. Also, their home was valued at only $55K. While Jones’ appeal was pending, Standard Water initiated proceedings for the sheriff’s sale of the property. Guess who bought it? Standard Water, for $45,000.
Long story short: Appeal and Appeal
We’ll keep this brief. Jones’ appeal was granted, reversing the sale of the house. The case went back to the lower courts. That decision was appealed again. We’ll skip those decisions, and jump right to the district court decision in 2019 instead.
A defense under homestead laws
At this point, while the second appeal was pending, Standard Water initiated another sheriff’s sale proceeding. In response, Jones filed a motion claiming protection from the sale under a homestead exemption defense.
The applicable laws are as follows. Under §561.16, the”homestead of every person is exempt from a judicial sale.” However, the homestead may be sold to satisfy debts incurred for work done or material furnished exclusively for the improvement of the homestead (§561.21). The court held a lengthy discussion of whether homestead rights were waived or not. Ultimately, they declared that Jones maintained their homestead rights in this case.
The court concluded that Standard Water was entitled to attorney fees, but they could not be collected through the foreclosure proceeds. Only the principal amount of the mechanics lien claim ($5,400) could be recovered from the sheriff’s sale of the property.
Jones again appealed the decision to the Supreme Court of Iowa, but the decision was affirmed.
Homestead: Not just any residential project
The legal protection of a person’s home stretches back to the era of Abraham Lincoln and the Homestead Act of 1862. Back then, the law gave individuals the right to claim 160 acres if they lived on it for 5 years! Today, homestead laws have evolved to protect homeowners from eviction, even if they go bankrupt or have claims filed against them. These laws are essentially a guard to keep financial troubles from making families homeless. Legally, a person can have only one homestead.
Collecting attorney fees isn’t a guarantee
This is an important decision for contractors who work on homestead properties. This can clearly affect a lien claimant’s ability to recover attorney fees, which may make enforcing a lien claim less attractive in some cases. With this decision, Iowa mechanics lien judgment doesn’t include the right to recover attorney fees and court costs through the foreclosure of a homestead.
The amount recoverable from a homestead foreclosure is limited to the value of work or materials provided to the improvement.