In most states, subcontractors or suppliers can file a mechanics lien at anytime before the statutory deadline and the lien will be completely effective for the full value of the claim. This is not the case in states like Massachusetts, where there is a “cram down” provision. As explained by DiNicola, Seligson & Upton LLC’s blog:
The amount of a subcontractor’s or sub-subcontractor’s lien is limited to the amount due or to become due the contractor or subcontractor that is in contractual privity with the lien claimant at the time the lien claimant’s notice of contract is recorded. Therefore, if a general contractor owes a subcontractor $100,000 (i.e., the amount due or to become due), and a sub-subcontractor of that subcontractor records a notice of contract asserting that it is owed $150,000, the amount of that lien is capped at $100,000 — the amount due or to become due.Get lien stories and legal alerts
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The provision is old news in Massachusetts, and it’s a reason why those who file liens in Massachusetts should do so at the earliest opportunity, and not wait until just before their deadline. However, over the past two years, there has been some enlarging of the cram-down provision rules, and in a way that completely makes sense.
The most recent case is Superior Mechanical Plumbing & Heating, Inc. v. Insurance Co. of the West, 2012 Mass. App. LEXIS 171 (Mass. App. Ct. April 12, 2012). The issue in this case is that a subcontractor filed a mechanics lien before the general contractor was terminated, but after all payments due to the general contractor were paid. So, while the lien was filed before termination and it would seem that the general contractor should have some money coming to it under the contract, in reality, there weren’t any amounts remaining due.
So, does the court allow the lien because it was filed before termination, or must the court look to the contract terms and figure out if any money is actually due? It seems obvious what the answer would be, and that is the answer the courts have chosen: look to the contract and whether money is actually due.
In Superior Mechanical Plumbing & Heating, therefore, quoting a 2011 decision, the court rejected “a rule that every subcontractor’s lien assertion preceding a formal termination of the general contractor assures full protection of the lien.” The court instead will look to whether the general contractor was entitled to payment “under the terms of the general contract, and not solely to when formal terminational occurred.”
The moral of the story here is clear: File your mechanics lien as early as possible in Massachusetts.