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Contractors Beware! Careless Mistakes Can Cost You Your Mechanic's Lien


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7/17/2009
Dan Brendtro
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If you are a contractor and file your own mechanic's liens, you may want to take a moment to read the opinion in DAKOTA CRAFT, INC. V. SEVERSON, 2009 SD 56, handed down on July 8, 2009, by the South Dakota Supreme Court. The strict rule established by the Court is enough to make anyone nervous.

Severson, the contractor, built the Boneyard Saloon in Whitewood, South Dakota, a large, destination concert venue and bar that piggy-backs onto the success of the Sturgis Bike Rally.  He finished the work on time, and completed everything required under the contract.  But the property owner did not pay for the work.

Severson had filed over $512,000.00 worth of mechanic's liens on the property.  (A mechanic's lien is like a mini-mortgage on real estate that helps ensure a contractor gets paid for his work.)

The trial court and Supreme Court held that $420,000.00 worth of the liens were invalid...leaving Severson secured for only about $82,000.00.

At great length, the Supreme Court picked apart the lien filing.  The problems included the following:
  • "it is unclear whether these descriptions relate to entire jobs or projects to be completed, and whether Severson was contracting a certain result at a certain price or whether he was charging per hour";
  • "the descriptions lack sufficient detail to meet the 'ordinarily intelligent and careful person' test;
  • the language of the liens is "inherently ambiguous, and fails to provide notice to the other materialmen and mortgagees of the ultimate cost of the work provided pursuant to this document".
  • the liens "fail to disclose the materials supplied, the amount of the materials supplied, or the purpose of the materials".

The only part of the lien which was upheld had very specific language, as follows:

  • "Apply PVC/TPO ultra guard roofing system to 180’ x 36’ building and [parapet] all adhesive fasteners and flashings as per print . . . all materials, labor, adhesives and taxes".

However, the Court noted that "there was no separate agreement for either material or labor for the project".  (If there were such an agreement, this specific language may have been insufficient, too.)
 
The moral of the story:  Be careful out there, and, if you're not confident you're doing it right, hire a lawyer to file your mechanic's liens. 

In addition, if you're a contractor still waiting to get paid, it may be time to foreclose your liens.  If your liens are valid, the Court's strict rule may invalidate other liens on the property, making it more likely you can get paid in full.


Category: Business Litigation


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