No one (with the exception of sadistic dentists) likes root canals, and no one (except lawyers) likes lawsuits. In the same way you can prevent (or limit) the need for root canals through proper flossing habits, you can limit the number of lawsuits you need to be involved in if you include everyone you should the first time around. For those involved in filing construction liens, this means that when you perfect a lien by filing the lawsuit, be sure you include everyone you need to include. A recent North Carolina Court of Appeals case demonstrates this principle in full living color.
In Lawyers Title Insurance Corp. v. Zogreo, LLC, __ N.C. App. __ (November 16, 2010), two contractors filed and perfected valid liens on a piece of property. They did not include, in the lawsuits to perfect the liens, the banks which had given funds to the property owner after they first began work on the property. The Court held that it was entirely proper not to include the banks (who held deeds of trust on the property to secure their loans); however, by the contractors’ failure to include them, they were forced to later litigate priority issues with the banks. This is because “if a subsequent encumbrancer is not joined [in the underlying lien perfection lawsuit], he is not bound by the judgment in the action between the contractor and the owner.”
In other words, even though they filed proper liens, filed the lawsuits timely, and even won final judgment in those lawsuits, because they did not include the banks, the banks were free to start a new action, which they did in this case. The banks also obtained an injunction to stop any judicial sale of the property until priorities could be established.
Moral of the story? It is better to include all subsequent encumbrancers (i.e., the banks) when perfecting a lien. It’s not required, but it is better practice. (And flossing your teeth isn’t required, either). After all, who wants a root canal, or, in this case, to re-litigate your right to be paid money in yet another expensive lawsuit? When it comes to root canals and lawsuits, fewer is better.
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Photo: Day One Hundred Fifty-One by Eric Mesa via Flickr/Creative Commons License
I was searching for information about liens and stumbled upon this blog. I was wondering if you would answer a few questions for me as I am a GC. A lien was placed on the building I am currently building by a subcontractor that I fired. This subcontractor was given written notice about his lack of performance and the quality of his workmanship at least a half dozen times. Ultimately after taking pictures of the bad work, I fired him and later supplemented his work to finish the job. I had just paid him the week before. The job was 70% complete. The payments he received were given to him because he signed the lien waivers attached to the pay apps. Two months later he places a lien on the property for the amount left on the job which he did not complete. I have found out since then that he did not pay his suppliers or his subcontractors and now they are threatening to lien the property as well. If I have a lien waver signed by the subcontractor how can he file a lien? What legal action can be taken against him for falsifying this document? How do I make him release the lien? To add insult to injury, he underbid the job by $38,000 which I had to pay to finish the job.
Sorry to hear of your lien woes! You have just discovered one of the frustrating things about liens– even people that really don’t have valid claims can slap one on the property and cause havoc. From what you’ve told me, however, it sounds like he should not prevail on a claim, if he even decides to perfect the lien with a lawsuit. If he signed a lien waiver waiving lien rights then that should act to cut off those below him in the chain of title. It may take some working out of the matter in the courts to clear all alleged liens from the property. If you’d like to discuss in more detail, give me a ring on Wednesday when I’m back in my office. Number is 919-881.2214.
Too funny! Hope your Dad isn’t like Steve Martin!!!
As the son of an endodontist (root canal dentist) and a construction lawyer, I can attest that the title to this post is a true one. Lawsuits, while necessary at times, are not great business.