I previously looked at the effect of a subcontractor's failure to record a certified copy of a complaint after the owner/general contractor recorded a bond in City Electric Supply Company v. Arch Insurance Company. In a recently decided unpublished Appeals Court case, Fidelity and Deposit v. Beyond Construction the Appeals Court appeared to affirm that when a lien bond is recorded, not all the steps necessary to establish a mechanic's lien are required.
Normally, in order to perfect a mechanic's lien, a lien claimant is required to record 1) a notice of contract; 2) within a set period of time thereafter, a statement of account; and 3) within a set period of time thereafter, file and record its complaint against the bond issuer. At any point along this continuum, which may span several months, any party may file a bond under G.L. c. 254 s. 14. A bond under G.L. c. 254 s. 14 is a 'target' lien bond whereby the bond takes the place of the particular mechanic's lien described in the bond. This frees the property interest of the lien and the owner can sell or mortgage the property interest as if the lien had never been recorded.
In the Fidelity and Deposit v. Beyond Construction case, the subcontractor, Beyond, completed interior framing work for the general contractor on a project in Brighton. Beyond claimed it was owed $200,000.00. On March 17, 2017, Beyond recorded a notice of contract. On March 20, 2017, the general contractor recorded a bond under G.L. c. 254 s. 14. The bond was issued by the plaintiff Fidelity and Deposit (F&D) On May 24, 2017, Beyond filed an action on the bond, seeking payment from F&D. F&D sought a determination that Beyond's mechanic's lien should be dissolved because Beyond did not record a statement of account before filling suit on F&D's bond. The lower court agreed with Beyond and found Beyond was not required to file a statement of account before filing suit on the bond. F&D appealed.
In any mechanic's lien case, the claimant has to show it complied strictly with the statutes setting forth how to obtain a mechanic's lien, including recording the correct documents in the correct time frame and order. F&D argued that Beyond had to have recorded a statement of account under G.L.c. 254 s. 8 before it was permitted to file a lawsuit on the bond. It claimed that the target lien bond statute, G.L. c. 254 s. 14, stated that a claimant was required to file a suit on the bond ninety days after the statement of account was recorded, or ninety days after receipt of notice of recording the bond. Since Beyond never recorded a statement of account, F&D claimed Beyond's suit on the bond had to be dismissed.
The Appeals Court in effect said the either/or language for the time frame of filing a suit on the bond was not a requirement to record a statement of account, but a method of starting the clock on when the suit must be filed. It rejected the concept that a claimant that sought recovery on a bond was required to comply with requirements for perfecting a lien. It cited G.L. c. 254 s.14's language stating that the recording of a bond dissolved the lien, and therefore it would be illogical to require further steps to perfect a lien which was dissolved.
Most practitioners like myself always took the position that a claimant had to comply with all requirements for perfecting a lien in order to recover on a lien bond. It requires little additional effort to prepare and record a statement of account (many of us record the statement of account at the same time as the notice of contract) and record the complaint, why not play it safe? Depending on the outcome of City Electric Supply Company v. Arch Insurance Company., this may no longer be necessary. The Appeals Court in Fidelity and Deposit v. Beyond Construction appears to have held what the lien claimant in City Electric Supply Company v. Arch Insurance Company is currently arguing, that lien perfection requirements do not apply in bond cases. Perhaps the SJC will follow the Appeals Court on this issue.
Post a Comment