Notice Your Lien or Kiss it Goodbye in Minnesota

Like many states, Minnesota requires subcontractors and suppliers to send pre-lien notices to owners to perfect mechanic's lien rights. Failure to comply with the pre-lien notice statute can prove fatal to a lien enforcement action as one masonry supplier recently learned. In Timberwall Land & Masonry Products, Inc., the Minnesota Court of Appeals affirmed the lower court's summary judgment dismissing a masonry supplier's lien enforcement action against a homeowner.

In 2018, a homeowner hired a contractor to build a single-family residence. The contractor hired Timberwall to provide materials for a retaining wall at the home. Timberwall did not send a pre-lien notice to the homeowner until 72 days after it started supplying materials to the project. Under Minnesota law, Timberwall should have provided such notice within 45 days.

The homeowner paid the contractor for Timberwall's work, but the contractor did not pay Timberwall. As a result, Timberwall filed a lien and brought a foreclosure action against the homeowner. The homeowner counterclaimed for slander of title and to quiet title to the property. At trial, the homeowner moved for summary judgment to dismiss the lien enforcement action for failure to comply with Minnesota's pre-lien notice statute. The trial court agreed with the homeowner and rejected Timberwall's arguments that (1) it qualified for a good-faith exception to the pre-lien notice requirement and (2) the pre-lien notice was not required because the homeowner acted as its own general contractor.

Timberwall then appealed this partial summary judgment, but the court of appeals also rejected its arguments for an exception to the pre-lien notice requirement. Per the court, Minnesota's good-faith exception "applies if the lien-claimant first shows that a good-faith effort to comply with the pre-lien notice requirements was made, and the owner or another lien claimant fails to establish damages based on failure to comply." Because Timberwall did not provide evidence that it made any attempt to serve the pre-lien notice within the 45-day statutory period, it could show no good-faith effort at compliance, so the exception was not applicable.

As in some other states, Minnesota law also provides a lien claimant may be exempt from the pre-lien notice requirement if it can show the owner acted as the general contractor on the project. The pre-lien notice statute is intended to protect unsuspecting owners from hidden liens from suppliers and vendors that are unknown and often unascertainable by the owner. But if an owner is acting as a general contractor for the project those concerns are moot, and in certain circumstances, a supplier may be forgiven for not sending the pre-lien notice.

Timberwall relied on the building permit being issued to the homeowner as a basis for classifying the homeowner as a general contractor. The court of appeals disagreed. The permit only listed the homeowner as a point of contact and not as the general contractor for the residence. There was no evidence the homeowner had any experience acting as a contractor or supervising a building project. Per the court, recognizing the homeowner as a general contractor "would be inconsistent with the purpose of the pre-lien notice." The court, therefore, denied the appeal, and the parties returned to trial for resolution of the homeowner's counterclaims.

Lessons from This Decision

Lien statutes are generally strictly construed, so compliance with notice, form, filing, and other requirements is critical. The Minnesota case shows what can happen to subcontractors and suppliers who fail to comply with statutory requirements. Timberwall lost its claim against the owner and probably cannot recover from an insolvent contractor. Moreover, Timberwall likely incurred substantial legal expense to get to this poor outcome. Now it faces further liability from the homeowner's slander of title counterclaim.

Timberwall appears to have compounded the consequences of its non-compliance by pursuing a meritless lawsuit. It may have been better off writing off the loss before filing the defective lien and accompanying enforcement action. The result in this case underscores the importance of diligent contract administration prior to and during project execution and careful litigation risk assessment once a default or breach occurs under a contract.

This blog post, "Notice Your Lien or Kiss it Goodbye," was originally published on June 26, 2020, by Bradley Arant Boult Cummings on the Construction Practice Group blog, BuildSmart.

Aman Kahlon represents owners, general contractors, and subcontractors. His experience ranges over a wide variety of disputes. He advises clients on delay, interference, defective design, and negligence claims. Aman also devotes a significant portion of his practice to contract review, drafting and negotiation; contract and claims administration; and lien and bond law issues.

David Pugh represents owners, general contractors, subcontractors, engineers, architects, insurance companies and sureties throughout the United States. He advises clients at every stage of a construction project: conception, planning, performance and closeout. David drafts and negotiates contracts for several large scale projects, and he participates in trials, hearings, appellate arguments, mediations and arbitrations in Alabama, Georgia, Florida, Mississippi, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas and Mexico, among others.

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Friday, 03 December 2021

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