Posted in Blog, Commercial Litigation, Construction Law, Real Estate Law by

By Joseph G. Ballstaedt
801-365-1021
[email protected]

A lien on real property (i.e. land and buildings) is a claim against this property for the payment of money. A notice of lien is generally a document that is recorded with a county recorder’s office in Utah that gives notice to the public that this piece of property is encumbered or potentially liable for a claim for money. If a lien claim is recorded against a property, it can be difficult—or impossible—to sell the property. Lien claims can also muddy up attempts to refinance loans on property, among many other problems.

Even if a person does not have a valid basis to do so, he or she can try—and may likely succeed in—recording a lien claim on a piece of real property in Utah. Although it is possible that a state employee at the county recorder’s office may notice something fishy about the lien claim and may rightfully refuse to record it, this does not guarantee that blatantly false or groundless lien claims won’t successfully be recorded.

Improper lien claims can be attacked and removed from the records in the county recorders’ offices. One route is through following the procedures in Utah’s Wrongful Lien Act. A common type of lien is a construction lien—or a mechanic’s lien. Although a claim to a construction lien may not be a valid lien claim, it may not be a “wrongful” lien under Utah law. This post discusses this issue in some depth—when a construction lien claim may or may not be a wrongful lien subject to the penalties in the Wrongful Lien Act.

Penalties under the Wrongful Lien Act

If a person records a wrongful lien in a country recorder’s office in Utah, this person can be liable for some severe penalties: whatever actual damages result from the wrongful lien, in addition to statutory damages of $3,000 or $10,000 (or three times the actual damages if greater) based on certain conditions. This person filing a wrongful lien can also be held responsible for attorney fees and costs that result from fighting the wrongful lien. In short, it is not a good idea to record a wrongful lien on a piece of real property in Utah.

Definition of a Wrongful Lien

According to Webster’s dictionary, one of the definitions of “wrongful” is “having no legal claim.” Under Utah law, however, the definition of a wrongful lien is narrower. The statutory definition of a wrongful lien is a lien that is not expressly authorized by statute, by a court, or by the owner of the property. Utah judges have further defined the scope of a wrongful lien, interpreting the Wrongful Lien Act and explaining that even if a lien claim ultimately proves to be unsuccessful and to be an invalid legal claim, it is not necessarily a wrongful lien. If a certain type of lien—such as a construction lien—is expressly authorized by statute, and the person who records the lien believes that he or she is properly pursuing a statutory lien, but this lien is ultimately proved to be unenforceable (having no valid legal claim), the lien is almost certainly not a wrongful lien. Stated otherwise, if the person who files the lien claim has a plausible basis for seeking the lien, it probably isn’t a wrongful lien.

To help us understand what would not be a plausible basis for asserting a statutory-based lien, one Utah court stated: “[A] person who is not an attorney could have no plausible basis for recording an attorney’s lien; a dentist who repaired a patient’s crowns would have no basis for recording a mechanic’s lien against the patient’s residence.”

When a Construction Lien Can Be Wrongful

The Wrongful Lien Act specifically addresses construction liens. It plainly states that people “entitled” to construction liens and who file or record a construction lien claim have not filed a wrongful lien. However, even if a person is ultimately proven to not be entitled to a construction lien, this does not mean that the lien is wrongful. Again, if there is a good-faith basis for asserting the construction lien, the lien is probably not wrongful.

For instance, to preserve a lien claim, a person who performs construction services on a property must file a preliminary notice. If a preliminary notice is not filed, the underlying lien claim is lost forever. Let’s suppose that a party fails to file a preliminary notice, mistakenly thinks that he or she filed this notice, and then proceeds to record a construction lien claim with a county recorder’s office. This recorded lien notice, although ultimately an invalid claim, might not constitute a wrongful lien subject to the penalties set forth in the Wrongful Lien Act. If, on the other hand, the person knew that it hadn’t filed a preliminary notice and also knew that doing so was necessary to preserve the lien claim but still went ahead and recorded a construction lien claim anyway, this claim would likely constitute a wrongful lien.

A more clear-cut case would be where a party claims a construction lien on property knowing that no work was ever done on the property. This would clearly constitute a wrongful lien, even if it was asserted under the statutory basis of a construction lien claim. There is no plausible basis for asserting a lien claim on a property where no work has been performed, and any person who does this should certainly be wary of being subject to the penalties of the Wrongful Lien Act.

Help with Lien Issues

If you have any questions about a wrongful lien, a construction lien claim, or any other lien-related issues, give me a call. I am happy to help, and I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at [email protected].

joseph-g-ballstaedt

Joseph G. Ballstaedt
801.365.1021
[email protected]

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