A mechanics’ lien claim can give the contractor, subcontractor or material supplier making the claim a significant amount of leverage over a property owner in a payment dispute. This makes sense, of course, because the concept behind mechanics’ lien law is to provide some assurance that people will receive payment for work and materials they provide to improve real property. But what can the owner do where the claim for payment is disputed and the mechanics’ lien threatens to put the owner in default of its mortgage covenants or disrupt a sale or refinancing of the property?
When there is no external pressure from a lender or pending sale of the property, the owner does not necessarily need to do anything to address a lien. Ohio mechanics’ liens are valid only for a period of six years from the date of recording. If the owner believes the lien is invalid and therefore unlikely to be foreclosed upon, the owner can simply wait six years until the lien expires.
If, however, the lien needs to be removed prior to the expiration of the six-year period, the owner has several options. Ohio’s mechanics’ lien law is complex and contains many traps for the unwary that may render a mechanics’ lien invalid. For instance, on commercial projects, a mechanics’ lien claimant only has 75 after the last date of work in which to file the lien affidavit with the recorder’s office. The lien must then be served upon the owner or owner’s designee within 30 days. Failure to meet either of these deadlines will render the lien invalid.
Another stumbling block for potential lien claimants occurs when the owner has recorded a notice of commencement (which the owner typically should). The recording of the notice of commencement triggers an obligation on behalf of subcontractors or material suppliers to serve a notice of furnishing upon the owner in order to preserve their right to claim a lien. Check to see that a notice of furnishing was properly served by the lien claimant. If not, the claimant may have lost the right to file a lien. Note that the requirement to serve a notice of furnishing does not apply to someone who has a contract directly with the owner.
If the lien claimant has followed the proper procedural steps to perfect its lien, the owner can still force the lien claimant’s hand by serving the claimant with a “notice to commence suit.” The procedure for properly serving a notice to commence suit is also fraught with traps for the unwary so it should be handled by an experienced attorney. Once the notice to commence suit has been served upon the lien claimant, the lien claimant will have to either commence a lawsuit on the lien within 60 days, or the lien will be void. This approach is useful where the lien filing may be procedurally correct, but the owner disputes the underlying claim.
Finally, the Ohio Revised Code provides a procedure whereby the owner can substitute a bond, cash, or other acceptable collateral for the real property, thereby freeing the real property from the lien and allowing the sale or refinancing to proceed.
The lien against the bond or cash deposit as replacement for the lien against the real property is an effective, but not always practical, tool to not allow the real property to be tied up in litigation while affording the holder of the lien with the security that funds will exist to satisfy the lien claim if they prevail.
If you are a lien claimant file early enough to comply with the timing requirements of the statute; if you are a property owner, make sure you examine the lien carefully.