Construction Liens — Dos and Don'ts

By Hafez Daraee

Most contractors appreciate the tremendous tactical advantage that an appropriately filed and perfected construction lien affords them when payment disputes arise. Oregon's construction lien statutes (ORS 87, et seq.) and Washington's lien statutes (RCW 60.04, et seq.) allow contractors in Oregon and Washington to protect themselves when payment for labor or materials is not forthcoming.

"Nine Things to Remember About Construction Liens"

1. Make sure you are a licensed contractor for purposes of claiming a construction lien.
   
   In Oregon or in Washington, generally speaking, an unlicensed contractor may not claim or file a construction lien or enforce any payment rights. Make sure you know the requirements of your license, and make sure you do not allow your license or registration to lapse or be suspended.
   
   And just because you have a CCB license or are registered with the Bureau of Labor & Industries does not mean you are a licensed contractor for the purpose of claiming a construction lien.
2. Do not assume you know the nature of the project.
   
   In both Oregon and Washington, the requirements for perfecting a construction lien differ depending on whether the project is residential or commercial. Make sure you consider the nature of the project when you consider how to protect your lien rights.
   
   
3. Make sure you provide the correct preclaim notice.
   
   Both Oregon and Washington impose preclaim notice requirements on all contractors engaged in construction activities. In Oregon, a preclaim notice must be given to the property owner and mortgagee. In Washington, the preclaim notice must be given to the owner and prime contractor (if you are a subcontractor). Failure to provide the required preclaim notice could at best cause your lien to lose its priority. At worst, failing to provide the required notice could negate a contractor's ability to recover attorney fees and costs as part of the lien, or could render the entire lien unenforceable.
   
   
4. Do not miss the deadline for providing a required preclaim notice.
   
   Providing the appropriate preclaim notice is only half of the challenge. The second half is providing the required preclaim notices in a timely manner. In Oregon, the notice must be provided within eight business days after commencing to provide labor, material, equipment, or services to the project. In Washington, the preclaim notice must be provided as soon as possible but not later than 10 days after supplies, material, or equipment is first provided to the project, if residential, and not later than 60 days if the project is commercial. A missed deadline could reduce the amount that can be claimed in the lien, could negate the right to recover attorney fees and costs, or could render the lien either wholly or partially unenforceable.
   
   
5. The only way to prefect a lien is by correctly recording a claim of construction lien.
   
   Once work has ended or the contract has been terminated (rightfully or wrongfully), a contractor has a narrow window of opportunity within which to file a claim of lien.
   
   In Oregon, the claim of construction lien must be filed within 75 days after ceasing to provide labor, materials, or equipment. In Washington, the lien claimant has 90 days to perfect a lien after ceasing to provide labor, materials, or equipment. To be effective, the claim of construction lien must be recorded with the county recorder in the county where the project took place (Oregon) or with the county auditor where the project took place (Washington).
   
   Oregon, unlike Washington, imposes two additional postfiling notice requirements on contractors. First, written notice of lien filing must be provided to the owner and to all mortgagees within 20 days after the date on which the claim of construction lien was filed. Second, written notice of intent to file a foreclosure lawsuit must be given to the owner and all mortgagees at least 10 days before suit is filed. Both notices must be given in writing and sent via certified mail, return receipt requested. These two notices can be combined in one letter, which is advisable in most circumstances.
   
   
6. Know the deadline for filing a lien foreclosure lawsuit.
   
   Oregon law affords a construction lien claimant 120 days to file a lien foreclosure lawsuit after the lien has been recorded. A lien claimant in Washington has eight months to file a foreclosure action.
   
   Regardless of the time allowed, the deadline to file a construction lien foreclosure action is "jurisdictional," which means that if a foreclosure action is not timely started, the lien is invalid and unenforceable as a matter of law.
   
   
7. Segregate the lien as much as possible — the more detail the better.
   
   The law requires a reasonable level of detail in the claim of construction lien. Rarely is a construction lien rendered invalid because it provides too much detail. But numerous liens are either invalidated in whole or in part because the court cannot break down the lien into its various components. Labor should be separated from materials and equipment. The more detail provided in the claim of construction lien the less likely it is that the lien will be attacked on this basis.
   
   
8. Do not try to protect suppliers or other subcontractors through your lien.
   
   As tempting as it may be to include other subcontractors or suppliers in your lien, do not do it. Such an action is especially tempting when the supplier or subcontractor happens to be your main source of labor or materials. While loyalty to subcontractors and suppliers is admirable, and including them is often the norm in this industry, you risk negating all lien rights. Keep in mind that all suppliers and subcontractors have lien rights and are responsible for protecting their own individual lien rights. The rule of thumb here is that contractors are not typically allowed to protect lien rights belonging to others. The danger is that a court could render the lien invalid because it contains sums for labor and material not directly provided by the lien claimant.
   
   
9. The right to potentially recover attorney fees is your most powerful tool.
   
   Nothing puts fear into an owner or prime contractor like the prospect of having to pay attorney fees on top of the lien amount. And nothing takes this bargaining chip away from you faster than failing to comply with the statutory requirements for filing a claim of construction lien.
   
   To ensure that lien rights are protected at all times, a contractor should approach each job with the assumption that a construction lien will be required before payment is received.
   
   Most mistakes are made while attempting to perfect a claim of lien at the very last second. Last-minute filing mistakes typically result in the loss of the right to recover attorney fees and costs. If this right is lost and the claimed amount is not large enough to justify the expense of a lawsuit on its own, the loss of the right to recover attorney fees will be the difference between getting paid and leaving all the money on the table.
   
   Contractors should view and respect the construction lien laws as they do trusted tools — never forget you have them and know how to use them properly. Construction lien rights are often the difference between receiving timely payment and not being paid at all.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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