It's Time To Stand Up To Mechanic's Lien Abuse In Residential Construction

Iowa's mechanic's lien statute (Iowa Code Chapter 572) was amended effective January 1, 2013. Additional changes became effective July 1, 2017. Both sets of changes were primarily intended to benefit and protect residential homeowners, who were at a disadvantage when working with contractors in the construction trade. The idea was that residential property owners were at a disadvantage because they often didn't know who their builder or general contractor had hired to work on the project as subcontractors or materials suppliers. The result was that many residential owners were paying their builder or general contractor in full, only to later learn that the builder or general contractor didn't pay a subcontractor or materials supplier, which was now demanding payment even though the builder or general contractor was supposed to take care of that using the money paid by the residential owner.  

Several changes were made to Iowa's mechanic's lien law beginning January 1, 2013 in an effort to protect residential owners from encountering such situations. The changes included new notification requirements imposed on builders and general contractors working with residential owners. The failure to comply with either notice requirement is a forfeiture of the right to assert a mechanic's lien against residential property.

First, Iowa Code 572.13(1) mandates that "[a] general contractor who has contracted or will contract with a subcontractor to provide labor or furnish material for the property shall provide the owner with the following owner notice in writing in boldface type of a minimum size of ten points:  Persons or companies furnishing labor or materials for the improvement of real property may enforce a lien upon the improved property if they are not paid for their contributions, even if the parties have no direct contractual relationship with the owner. The mechanics’ notice and lien registry provides a listing of all persons or companies furnishing labor or materials who have posted a lien or who may post a lien upon the improved property." That notice must also contain the internet site address and toll-free telephone number of the mechanics’ notice and lien registry. Iowa Code 572.13(3) expressly states that "[a] general contractor who fails to provide notice pursuant to this section is not entitled to a lien and remedy provided by this chapter."

Second, Iowa Code 572.13A(1) states that "[a] general contractor or owner-builder who has contracted or will contract with a subcontractor to provide labor or furnish material for the property shall post a notice of commencement of work to the mechanics’ notice and lien registry internet site no later than ten days after the commencement of work on the property. A notice of commencement of work is effective only as to any labor, service, equipment, or material furnished to the property subsequent to the posting of the notice of commencement of work." Iowa Code 572.13A(1) goes on to list several items of information that must be included in the notice of commencement of work. Again, Iowa Code 572A.13(4) clearly states that "[a] general contractor who fails to provide notice pursuant to this section is not entitled to a lien and remedy provided by this chapter."

Despite those clear statutory provisions for residential construction, many general contractors don't comply with them, probably because they don't even know that the notice provisions exist. But, notwithstanding the code sections that state that failure to comply with the notice provisions forfeits a contractor's right to a lien, many contractors still persist in asserting a mechanic's lien against the residential property, even after our firm's warned them that they have no right to a lien because of a violation of the notice provisions. Our suspicion is that contractors are persisting in asserting liens they know to be invalid in an effort to make the case more difficult and expensive for the homeowner, particularly when the homeowner has asserted claims against the builder or contractor for defective construction or breach of contract, because now the homeowner has to either fight to get the mechanic's lien off the property or negotiate a settlement with the contractor.

We believe that to be an abusive use of mechanic's liens, especially because the contractor knows that the lien's invalid but asserts it anyways in an effort to back the homeowner into a corner. But residential owners don't need to put up with that because the mechanic's lien statute includes provisions for challenging the lien's validity under Iowa Code 572.24(2): "An action to challenge a mechanic’s lien may be commenced in the district court or small claims court if the amount of the lien is within jurisdictional limits. Any permissible claim or counterclaim meeting subject matter and jurisdictional requirements may be joined with the action. The court shall make written findings regarding the lawful amount and the validity of the mechanic’s lien. In addition to any other appropriate order, the court may enter judgment on a permissibly joined claim or counterclaim. If the court determines that the mechanic’s lien is invalid, valid for a lesser amount, frivolous, fraudulent, forfeited, expired, or for any other reason unenforceable, the clerk of the district court shall submit the ruling to the administrator who shall make a posting to the mechanics’ notice and lien registry internet site regarding the proper amount of the lien or, if warranted, canceling the lien." If the homeowner's successful in challenging the lien, Iowa Code 572.32(2) provides that "the court may award reasonable attorney fees and actual damages. If the court determines that the mechanic’s lien was posted in bad faith or the supporting affidavit was materially false, the court shall award the owner reasonable attorney fees plus an amount not less than five hundred dollars or the amount of the lien, whichever is less."