A lien release is generally filed after payment has been received, or if the lien has expired, or if the lien is invalid for some other reason. Generally, when a lien is released, that signals the end of the lien road as far as the payments subject to that lien are concerned. A recent Washington case, however, holds that a lien can be released and re-filed later for the same outstanding payments, at least in some circumstances.
Background of the Case
The mechanics lien at issue stems from a payment dispute on a Washington commercial development project, and the case springing from that lien, Sheclon Constr. Grp., LLC v. Haymond, is a long and complicated one.
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In 2006, Scott Haymond, a real estate developer, contracted with Shelcon, a general contractor, for a price of $732,941.92. On July 5 of that same year, Shelcon commenced work on the jobsite by measuring the boundaries in preparation for “clearing and grubbing.”
After some time, and pursuant to an issue of non-payment, Shelcon recorded a $303,291.29 mechanics lien.
After that lien was recorded, Haymond sought a loan to pay off the original loan for the development of the property, but was unable to do so because of Shelcon’s recorded mechanics lien. Pursuant to a promise to get paid from the proceeds of the second loan, Shelcon acquiesced to Haymond’s request to release the lien so that the second loan could be approved.
The release was recorded on July 16, 2008, and provided in part: “THE UNDERSIGNED LIEN CLAIMANT hereby releases the lien on the property owned or reputedly owned by. . . .”, and did not contain language addressing whether payment had been received or whether the lien release was limited or conditional in any way.
With the lien out of the way, the second loan was closed.
After continuing work, and remaining unpaid for a substantial portion of its invoices, Selcon recorded a second lien for $309,369.58 and interest. This second lien contained amounts due for work that was initially included in the first (now released) lien.
The Washington appeals court, after a complex procedural background not worth getting into here, examined, among other questions, whether Shelcon was entitled to record a second lien that included work it had previously included on a first lien, after that first lien had been released.
Didn’t Get Paid? Lien ‘Em Again
When deciding whether or not Shelcon had the ability to file a second lien that included amounts included in a previously released lien, the court noted that:
Anyone furnishing “labor, professional services, materials, or equipment for the improvement of real property” is entitled to a mechanic’s lien “upon the improvement for the contract price of labor, professional services, materials, or equipment furnished.” RCW 60.04.021
Since the court found that Washington’s mechanics lien statutes are silent regarding the effects of a lien release when full payment has not been made, it determined that “a lien release where the underlying work is not fully paid does not prevent the lien claimant from later recording a second lien.”
Washington lien release statues only note a requirement to release the lien when the amount of the lien has been paid in full and release is demanded. Clearly, that was not the situation in this particular case.
Although the court could not find a case that specifically addressed this exact issue, it did find precedent “strongly suggesting that a lien release does not preclude a later filing of a line for some work that was not fully paid but was included in the original released lien.”
Therefore, the Washington Appellate Court held that the lien release did not extinguish Shelcon’s right to file a mechanics lien for the unpaid amount.
What’s the Takeaway?
While it is unlikely that Shelcon spent a lot of time pouring over the Washington mechanics lien laws, and/or employed an attorney to do the same in an effort to determine if the second lien was valid – it worked out in this instance.
It’s important to note, however, that this result may or may not be reached in any other states that have the opportunity to examine this issue.
While the original lien was released upon a promise of payment from he new financing, that payment was not forthcoming. While the promise can be seducing, and it’s not generally a good move to sour business relationships in which one wants to continue working, releasing a mechanics lien prior to payment is a risky maneuver.
Luckily for Shelcon, in this situation the court decided this silence of statute on the matter was to Shelcon’s benefit, in this case, but that decision was not guaranteed. Also, it’s worth noting that if the release ha mentioned that Shelcon was releasing the lien for payment received the decision may have gone the other way (even if that payment was never actually received). Sometimes things just work out in your favor, but the best practice is to try to make sure they don’t need to.