Iowa Court Of Appeals Hobbles Contractors In Mechanic's Lien Cases

On February 6, 2019 the Iowa Court of Appeals issued a decision that severely limits the power of mechanic’s liens in Iowa when a lien’s asserted against a residential home. In general, when a contractor succeeds on a mechanic’s lien and receives a judgment against a property owner, the property subject to the mechanic’s lien can be sold at a judicial auction if the owner doesn’t otherwise pay the judgment. The proceeds of the judicial sale then go to the contractor to the extent necessary to satisfy the judgment against the property owner. The process is similar to foreclosure on property for failure to pay a loan.

A contractor that’s successful in a mechanic’s lien case has the opportunity to recover attorney fees and litigation expenses in addition to any money that the property owner may be ordered to pay for labor and materials. That can turn a relatively minor $10,000-$20,000 dispute into a $50,000-$100,000 case once attorney fees and expenses are considered. That’s a strong weapon for contractors against property owners that are trying to dodge a bill because the financial consequences can be much more than the amount originally owed for labor and materials.

The question is whether the contractor can recover any court-ordered attorney fees or expenses through the proceeds of the judicial sale if the property’s foreclosed on to satisfy the mechanic’s lien judgment. That issue was addressed for residential homes by the Iowa Court of Appeals in Standard Water Control Systems, Inc. v. Jones on February 6, 2019. The case involved a $5,400 contractor bill that the homeowners refused to pay. The homeowners’ refusal resulted in a mechanic’s lien action against them. The contractor was successful on the mechanic’s lien and got a judgment for $5,400 against the homeowners. Demonstrating the danger of mechanic’s liens to homeowners, the contractor was also awarded nearly $60,000 in attorney fees on top of the $5,400 it was owed for labor and materials under the work contract.

So could the contractor recover its $60,000 attorney fee award through a foreclosure action following the mechanic’s lien judgment. The Iowa Court of Appeal said no. The homeowners’ property was considered their homestead. A person’s homestead is normally shielded from judgment collection efforts. One exception to the normal homestead immunity is for mechanic’s liens. Under Iowa’s homestead statute, Iowa Code Chapter 561, a homestead may be sold to satisfy a debt “incurred for work done or materials furnished exclusively for the improvement of the homestead.” Does that include attorney fees and expenses, or just the $5,400 that the homeowners were ordered to pay for the contractor’s labor and materials?

The Iowa Court of Appeals ruled that a mechanic’s lien judgment does not include the right to recover attorney fees and expenses through foreclosure on a homestead. Only the money for “work done or materials furnished” can be recovered through the sale of a homestead. Iowa’s homestead statute does not expressly expose homesteads to awards of attorney fees or expenses, so contractors in mechanic’s lien cases involving residential homes will have to try to recover their court-ordered attorney fees and expenses through a method other than the judicial sale of the homestead.