Thursday, August 23, 2018

Massachusetts Mechanic's Lien - It's The Little Things That Matter

Under direct appellate review, the Massachusetts SJC will soon decide a technical question relating to perfecting mechanic's liens . In City Electric Supply Company v. Arch Insurance Company, a subcontractor recorded certain documents required by Massachusetts's mechanic's lien law but lost its lien when it did not timely record a certified copy of the complaint it filed in court. This seemingly small step, obtaining a certified copy of the complaint and recording it (the recording fee is $75) deprived the claimant, City Electric Supply, of a $283,056.54 lien.

Massachusetts' mechanic's lien laws, like those of most states, give those who work on construction projects a means of obtaining payment outside the normal rules of liability. If, for example, a subcontractor performs work or supplies materials at a construction project, it can only seek payment from the general contractor that hired it, and not the owner of the project. No matter the reasons for the  general contractor's nonpayment, no matter how how much the subcontractor's work enhanced the project, in almost all cases the subcontractor cannot directly seek payment from the  owner.

The normal rules of liability may prevent the hypothetical subcontractor from seeking direct payment from the owner, but the Massachusetts mechanic's lien statute gives the subcontractor a right to record a lien on the owner's interest in the property. The theory behind the mechanic's lien statue is that the subcontractor's work or materials enhanced the owner's interest in the property, so the subcontractor should be given a right to foreclose and sell the owner's property to satisfy its lien.

However, in order to obtain the mechanic's lien, the subcontractor must follow the notice, recording and filing requirements of the Massachusetts mechanic's lien statute strictly, and that is the issue in the  City Electric case.

As required by the statute, the subcontractor, City Electric, recorded a notice of contract and a statement of account. At that point, the general contractor recorded a bond issued by Arch Insurance Company. Owners and general contractors often 'bond off' mechanic's liens, a statutory procedure that frees the land from the lien by substituting the bond as security. A bond fulfills the general contractor's duty to keep the owner's property free of liens or frees the owner to do as it wishes with the land such as offering it as security for a loan.

In situations where no bond is recorded, a Massachusetts mechanic's lien claimant must always record a certified copy of its complaint within thirty days after its complaint is filed in court. This is one of the strictly-enforced statutory requirements necessary to a perfected mechanic's lien. If no bond is recorded, the claimant's failure to record a certified copy of its complaint within thirty days of filing is fatal to its mechanic's lien.

The specific issue in the City Electric case was City Electric's failure to record its complaint within thirty days after filing suit in court. (City Electric recorded its complaint thirty-one days after filing)
If a bond has been recorded, does the claimant still have to record a certified copy of its complaint within thirty days, or at all? 

This is an open question in part because the Massachusetts mechanic's lien statutes are not explicit  as to what a mechanic's lien claimant has to do to establish its entitlement to recover on a mechanic's lien bond.

City Electric correctly pointed out that the statute providing for the lien bond at issue, G.L.c. 254 s. 14, contains no requirement that the complaint be recorded and that Section 14 explicitly states the bond dissolves the lien. As such, City Electric argued, once a bond is recorded, the case is no longer a 'lien' case, governed by G.L. c. 254 s. 5, which contains the requirement that a certified copy of the complaint be recorded within thirty days, but a 'bond' case, governed by G.L. c. 254 s. 14, which has no requirement to record.

Buttressing City Electric's position is the fact that there are two Massachusetts lien bond statutes, Section 14 and Section 12, and only Section 12 requires the lien claimant's complaint to be recorded.. The bond at issue was a Section 14 'target' lien bond, covering only the City Electric mechanic's lien. Section 12 lien bonds are 'blanket' lien bonds covering all mechanic's liens which may be recorded on a project. Citing principles of statutory construction, City Electric argued that since there were two statutes covering two different lien bond types, the legislature had to have intended that Section 14 lien bond complaints did not have to be recorded but Section 12 lien bond complaints did.

The lower court that ordered City Electric's lien dissolved acknowledged that Section 14 contained no requirement to record the complaint. However, she indicated that the Massachusetts' mechanic's lien statute, G.L. c. 254, had to be read in its entirety. She focused on G.L. c. 254 s. 5, which, although it does not refer to lien bond claims, governed the case and generally required recording of complaints within thirty days. The judge ruled City Electric's failure to record its complaint within thirty days as required by G.L. c. 254 s. 5 was fatal to City Electric's mechanic's lien claim.

The case is now in the SJC's hands. Currently, where there is no recorded bond, under G.L .c. 254 s.5, a Massachusetts mechanic's lien claimant must record its complaint within thirty days of filing under G.L .c. 254 s.5. The same is true for a mechanic's lien claim on a G.L . c.254  s. 12 lien bond, although there is no requirement to record within thirty days. However, where a G.L. c. 254 s. 14 lien bond is recorded, the requirements for perfecting a mechanic's lien, and thus entitlement to recover from the bonding company, are not as clear. As the City Electric case shows, failure to perform small acts such as sending or recording documents can be fatal to a lien claimants's rights. Hopefully the City Electric case, when decided, will provide clarity.

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