Everybody hates mechanics liens. Owners may hate them more than claimants, but no one wants to have to file a lien. In Tennessee, this was compounded by one of the nation’s harshest laws regarding lien disputes. Recently, that law was repealed.
Mechanics lien disputes, generally
Nobody wants to file a mechanics lien. Still, they’re a necessary evil for many construction businesses. When a mechanics lien is filed, the owner’s first response is typically to challenge the lien. This is true regardless of whether there’s actually an issue For many claimants, this can be scary. There are countless hoops to jump through to properly secure a lien, and it’s easy to make a mistake. And, if a mistake is made, there’s always a chance the claimant might not be able to recover.
In most jurisdictions, the risk of filing an improper lien isn’t that serious. As long as the lien was filed in good faith, and as long as there was truly an unpaid debt for the work, honest mistakes aren’t usually the cause of grave liability. Usually, the serious penalties are reserved for fraudulent mechanics liens.
For the past year, Tennessee bucked that trend. § 66-21-108 of the Tennessee Code created a lot of potential liability for lien claimants. Luckily, its reign was short-lived.
Why Tennessee lien claims were riskier from 2018 to mid-2019
Bass, Berry & Sims PLC has a great breakdown of recent Tennessee construction law changes, including the one described in this article. Creditors Rights 101 also has a helpful explanation on why the old law was so scary for lien claimants.
Under § 66-21-108, if a Tennessee mechanics lien was successfully challenged, the lien claimant’s business could be ruined. The claimant, if their lien was deemed invalid, was responsible for all of the following costs:
- (1) The owner’s reasonable attorney’s fees;
- (2) Reasonable costs incurred by the owner to challenge the validity of the lien;
- (3) Liquidated damages of 10% of the fair market value of the property (capped at $100,000); and
- (4) Any actual damages incurred by the owner.
That is brutal. Keep in mind – this wasn’t just for fraudulent lien filings! No, it was for any property owner who prevailed in an action challenging the validity of a filed lien. So, if a claimant made one small misstep, they could be looking down the barrel of over $100,000 in liability.
This law was passed in May of 2018. Considering the challenges in filing mechanics liens, and considering Tennessee is a state which has harder lien laws than most, Tennessee mechanics lien claimants really had to be on their A-game last year. Because the law was far too harsh, it only lasted a year on the books. It was repealed in late April.
Tennessee mechanics lien disputes just became less risky for claimants
This part is pretty simple! § 66-21-108 has been repealed, wholesale. Rather than tweak the law to try and soften it some, Tennessee legislature decided it should be rooted out in its entirety.
Seriously, the statute is only two sentences long, one of which says “This act shall take effect upon becoming a law, the public welfare requiring it.” Obviously, it was important that this law be repealed without hesitation. You can read the full text here, courtesy of LegiScan.
Helpful resources for Tennessee lien claimants:
How risky is it for Tennessee mechanics lien claimants, now?
Tennessee mechanics lien claimants should still handle liens with care. Lien claims are a serious payment remedy, and they should be taken seriously. But, now claimants don’t have to fear a minor mistake leading to major liability. Now, Tennessee goes back into the fold with the majority of states where the risk of filing an invalid mechanics lien is relatively low.
Still, if a claimant files a fraudulent or exaggerated mechanics lien, there’s plenty of danger. Specifically, under § 66-11-139 of the Tennessee Code, a lien claimant will lose their right to lien and may be liable for the owner’s expenses resulting from the lien’s exaggeration, including attorneys’ fees. So, Tennessee mechanics lien disputes aren’t as scary as they were before – but claimants should still be precise when filing a lien.