Mechanics liens aren’t exactly sexy or scandalous. Interesting stories pop up from time to time (like the recent Jay-Z and Beyoncé lien or fraudulent liens following a breakup), but for the most part, liens are pretty tame. However, a recent case involving government transparency exposed some questionable behavior regarding South Dakota liens. City officials secretly paid to have liens discharged while claiming to receive $1M for repairs on defective work.
South Dakota Liens and Government Transparency
Argus Leader has the full story.
First, let’s set the stage. In Sioux Falls, South Dakota, the $115M Denny Sanford PREMIER Center was completed a few years ago. Shortly after its completion, citizens noticed defects in the metal siding. The city set out to resolve the issue, and ended up declaring that a $1M settlement had been reached with the builders. However, the city refused to release the details of the settlement.
In attempt to make the agreement public, Argus Leader Media sued the city to have the documents released. The disagreement went all the way to the North Dakota Supreme Court, where the court found that the agreement should be disclosed. The next day, the agreement was made public.
The settlement agreement can be found here or in the above link to the Argus Leader article.
According to the city, the settlement resulted in the city being reimbursed $1M to be put toward future improvements. The agreement wasn’t quite that simple, though.
Pursuant to the agreement, the city will pay $495,000 in exchange for the discharge of two liens that were filed on the property. The city will save about $84,000 on those claims. The city will receive just under $444,000 from the other companies involved in the agreement. Also, the Construction Manager’s Contingency Fund was reduced by right at $515,000, which would otherwise be paid by the city.
So, the city will save just about $599,000 and actually receive just $444,000. While this adds up to (about) $1.043M, the city is also paying out $495,000. That money was being retained pending a resolution to the defective work issue. Considering the settlement agreement had previously been categorized as a $1M gain toward future improvements, the net gain here is unimpressive. Had the city mentioned that other claims were settled along with $1M in considerations, the whole thing may have been a non-starter.
Mechanics liens are a powerful tool. So powerful, in fact, that the city of Sioux Falls used a defective work negotiation to settle lien claims. The city may have had its reasons for keeping the agreement confidential, but it’s never a good idea to mislead your own citizens. Since the story broke, the Sioux Falls mayor has come out to defend the agreement. But the issue wasn’t about whether or not the agreement was fair, it was that the city fought tooth and nail to keep the agreement under wraps.