In Utah, a construction lien is a valuable tool for any contractor, subcontractor, or supplier who does not receive payment for work it performs on a construction project. If the party who contracted for the work refuses or is unable to pay, the construction lien provides a second route to payment. It allows the lien claimant to seek the reasonable value of the services by selling the underlying property—after a long legal process. Very rarely, however, does a lien claim go the distance. Well before a lawsuit and lien foreclosure sale, somebody usually comes forward with payment. Thus, a lien is usually a tool for leveraging payment. But without knowing the full lien process and following necessary steps, a lien claimant can forfeit its lien rights.
In prior articles, I explained the five basic steps to creating, maintaining, and enforcing a construction lien in Utah, also known as a mechanic’s lien. These steps are:
- File a preliminary notice
- Record a notice of construction lien
- File a foreclosure lawsuit and record a lis pendens
- Prevail in the lien foreclosure lawsuit
- Sell the property
This article provides a general overview and summary of these steps.
1. File a preliminary notice
The first step to preserving a lien claim is filing a preliminary notice, an electronic filing done online with the Utah State Construction Registry. It puts the world on notice of a potential lien claim. Filing a preliminary notice is very inexpensive and a relatively easy process that should take just a few minutes, but many lien claimants overlook this step and, as a result, forfeit their lien rights. A lien claimant must file a preliminary notice within twenty (20) days of beginning work on a project. If it does not, it can still file a preliminary notice, but it only preserves the right to a lien on work performed five (5) days after the filing.
2. Record a notice of construction lien
Next, a lien claimant must record a notice of construction lien with the county recorder’s office in the county where the work is performed. The timeline to do so is not as quick as a preliminary notice. Generally, a lien claimant must record a notice of construction lien either 180 days after the original contract reaches final completion or 90 days after a notice of completion is filed with the Utah State Construction Registry, whichever is earlier. If a lien claimant fails to record a notice of construction lien within the applicable timeline, it loses its lien claim.
3. File a foreclosure lawsuit and record a lis pendens
After filing a notice of construction lien, the lien claimant must—if not paid—do two things within 180 days to maintain its lien rights: 1) file a lien foreclosure complaint with a Utah court and 2) record a lis pendens at the county recorder’s office. The lis pendens provides notice to the world that the property is subject to a lien claim, and if a purchaser buys the property, it does so subject to that lien claim. Like other steps, failure to meet the 180-day deadline for a lawsuit and lis pendens results in a complete forfeiture of the lien claimant’s lien rights.
4. Prevail in the lien foreclosure lawsuit
The next step is winning the lien foreclosure lawsuit. If successful, the claimant receives an order from the court that allows it to sell the property that benefitted from the construction services. The foreclosure lawsuit is not a simple process. It is much like any other lawsuit, will likely last months and years, and can be very expensive. The good news is that the prevailing party is generally entitled to an award of attorney fees and interest that accrue along the way. So, if the lien claimant wins, it can usually recoup the costs of litigation.
5. Sell the property
After obtaining an order from the court, the lien claimant must then sell the property. The property is sold in the same manner as a mortgage foreclosure, subject to the right of redemption. If the sale proceeds are insufficient to pay the lien claimant, the lien claimant may be out of luck. However, in addition to recovering from the sale proceeds of the property, the lien claimant can seek payment from the party who hired it through a breach-of-contract claim. Usually this secondary, alternative breach-of-contract claim is included in the lien foreclosure lawsuit.
Help with Construction Liens
The above steps provide a basic overview of the construction lien process, but each lien claim is unique, and there are many laws and facts beyond this general explanation that each lien claimant should consider. It is always wise to consult with a construction lien attorney. If you are enforcing or defending against a construction lien, I am happy to help. I offer a free consultation. My direct dial is 801.365.1021, and you can e-mail me at [email protected].