Evan Brown | Ahead of Schedule
One of the most common protections for laborers, contractors, suppliers, and others providing construction services or materials for a project is the right to a lien against the project property for the value of the work provided. However, because these liens create involuntary encumbrances on the property, lien statutes provide certain protections for the owners as well.
One of the key protections is a time limit on how long a recorded lien can remain valid and enforceable without the lien claimant initiating a lawsuit to foreclose on it. In other words, liens usually will “expire” if the claimant takes no action within the specified period. But because recorded liens typically remain in the chain of title even after expiration, even an expired lien can create problems for an owner. But what can an owner do?
“Recordation” is the legal term for filing a document with the local county so that it appears in the public property records. Once recorded, the document is associated with the property and can be found in searches by title companies or members of the public. Many counties make their property records searchable via an online database that can be accessed easily. You do not have to prove the validity of a lien or initiate legal action to record it. As such, when a lien claimant records a lien against the project property, the encumbrance becomes publicly visible and creates at least the appearance of a “cloud” on the property owner’s title.
However, that recorded lien has a shelf life. The lien claimant is in a “use it or lose it” position once the lien is recorded and must commence a lawsuit to foreclose the lien within a certain period set by statute. In Oregon, this period is 120 days, though it can be extended up to two years. California gives a 90-day period, which can be extended up to one year from completion of the project. In Washington, it’s eight months from recordation, usually with no extensions. If a lien claimant fails to commence foreclosure within the specified period, the lien becomes effectively unenforceable. But it remains recorded for all to see.
Title companies searching property records in connection with a sale, a refinance agreement, or another activity can and do find expired liens and may or may not understand that they are expired. Title examiners usually are not lawyers and may not be aware of the applicable law, particularly in other states. Potential buyers or lenders may be scared off by the appearance of a construction lien against the project. Title examiners or other agents may require information from an owner’s lawyers, leading to unanticipated legal fees. To easily show future title companies and others that the property is no longer encumbered by the lien, an owner needs a release or other document showing that the lien has expired and no longer binds the property.
In some states, the lien statutes anticipate this and provide processes for an owner to obtain a release that may be recorded. In Oregon, the owner can send a written notice to the lien claimant that the lien has expired, and if the claimant does not object within 15 days, a release may be recorded with the county. In California, the owner can send a written demand to the lien claimant for a release, and if the claimant ignores the demand, can petition a court to release the property from the lien. These processes allow an owner to remove the apparent cloud on a title.
However, in other states, the lien statutes are less clear as to what exactly an owner must do to obtain a release. In Washington, for example, the lien statutes contemplate actions to seek “deliverance” of a lien release or cancellation of a lien. In most states, an owner has the option of commencing a lawsuit to “quiet title” and have the court declare that the lien no longer burdens the property. Similarly, many states allow an owner to seek a declaratory judgment if there is a dispute as to whether the lien has expired. In the recent case of 2400 Elliott, LLC v. VP Elite Construction, LLC, Washington’s Court of Appeals indicated in an unpublished opinion that this is an appropriate means of seeking clarity as to an expired lien. A lawsuit for “slander of title,” a tort cause of action for false statements that can impede the property value or owner’s ability to sell or use the property, may be an option in some states as well. But these can be costly legal actions for an owner, and the juice may not always be worth the squeeze. In some states, an owner can recover its attorneys’ fees from the claimant, but this too can be a drawn-out process. That said, often the threat of legal action alone is enough to compel a recalcitrant claimant to provide a release.
It is important that lien claimants and owners alike are aware of lien expiration and the potential for an expired lien to create problems in the chain of title. In most cases, it is in everyone’s interest to just cooperate informally, acknowledge the expiration, and provide a lien release. But, failing this, legal action may be available to obtain a release, and owners and claimants alike should be aware of the potential costs of such action (for both parties) and whether the operative statutes or other law allow the owner to seek an attorneys’ fees award.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.