What every contractor, supplier and property owner should know
July 27, 2015
Contractors often invest significant time, labor and materials into a project before being paid and face considerable risk of not being paid. Nevada recognizes this vulnerability and to help ensure payment, has created a sophisticated Mechanic's Lien Law that grants contractors a lien on the real estate they have worked on. Establishing and enforcing a mechanic's lien can be a complex exercise however.
This article provides contractors, suppliers and property owners a brief introduction and high-level overview of Nevada's mechanic's lien law.
1. What is a mechanic's lien? A mechanic's lien may be acquired by someone who has provided work, material or services for construction or improvement to land. These special, statutory liens are in addition to any remedies that a contractor may seek on the underlying construction contract.
Because mechanic's liens are purely statutory, contractors and suppliers must strictly follow the requirements and comply with the deadlines set forth in the statute or risk losing their right to secure payment.
2. Who has a right to lien? Anyone who provides labor, services, materials or equipment with a value of $500 or more to be used in or for the construction, alteration or improvement of real estate has a potential mechanic's lien on that property for the unpaid balance due under a contract or the value of the work performed.
This includes artisans, builders, contractors, laborers, lessors of equipment and anyone who performs services as an architect, engineer, land surveyor or geologist. Although generally referred to as a "mechanic's lien," they are also commonly referred to as "construction liens" or "materialman's liens." If a license is required to perform the work, an unlicensed contractor or professional may not assert a mechanic's lien, but may have other equitable or contractual remedies.
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3. Creating and perfecting a mechanic's lien. Under Nevada law, a potential mechanic's lien arises as soon as the work is commenced on a project, but cannot be enforced until it is completed. To create a lien, a claimant must record a notice of lien in the County Recorder's office of the county where the property is located within 90 days after the completion of the work or last delivery of materials or equipment — or 40 days after the property owner files a notice of completion in the county records.
The notice of lien is prescribed by statute and must contain all the required information to be valid. The first thing that the owner's counsel will do upon receiving notice of a recorded lien is examine whether the lien is timely. If not, the lien may be invalidated. The best practice for contractors and suppliers is to carefully monitor the deadline to record the lien.
A properly recorded mechanic's lien binds the property for six months.
4. What property does the mechanic's lien attach to? A mechanic's lien binds the property, any improvements for which the work, materials and equipment were furnished or to be furnished and any construction disbursement account.
The statutory definition of property is expansive and includes not only the land, but all buildings, improvements and fixtures as well as a "convenient space" around the property necessary for the use and occupation of the land.
Once created, a mechanic's lien has priority over all other liens, mortgages and other encumbrances that may have attached to the property after commencement of the construction. Because each mechanic's lien that relates to a scheme of improvement relates back to the date that the work was first commenced and holds priority over subsequently recorded deeds of trust, construction lenders risk substantially impairing their security interests in the property if contractors go unpaid.
5. Contesting a frivolous or excessive mechanic's lien. A recorded mechanic's lien places a cloud on title and may trigger a default under the project owner's agreements with its lender. If a property owner has reason to believe that a recorded notice of lien is frivolous or that the amount of the lien is excessive, the owner may apply to the district court for an order directing the lien claimant to appear before the court and prove the validity of its claim.
If the court determines that the lien is frivolous or made without reasonable cause, the court will order the lien to be released and award the owner its fees and costs for bringing the action. If the court finds that the lien is excessive, the court may reduce the lien to an appropriate amount.
6. Enforcing a mechanic's lien. The lien claimant may file an action to foreclose its mechanic's lien within six months from the date that the notice of lien was recorded by filing a complaint in the proper court. Upon filing the complaint, the lien claimant must prepare a notice of foreclosure to be published in the newspaper in the county where the property is located and file a notice of the pending action with the county recorder.
The court will adjudicate the liens on the property and order the property sold in satisfaction of all liens.
The proceeds of the sale will be distributed to the lien claimants according to their priority. A prevailing lien claimant is entitled to its attorney's fees, costs and interest on the lien amount. Enforcement of a mechanic's lien does not affect the claimant's right to maintain a separate action against the contracting party individually for breach of contract or other remedies.
Nevada's mechanic's lien statutes are complex, can be confusing and, at times, subject to inconsistent interpretation. Whether you are negotiating a complex construction contract, seeking construction financing, or faced with a notice of lien on your property, it is wise to familiarize yourself with the relevant statutes or seek guidance from legal counsel.
John Tennert is an attorney in Fennemore Craig's Reno office and a member of the firm's Business Litigation Practice. He has represented clients in a variety of complex civil litigation, financial service and real estate matters. Reach him at email@example.com.