Most state mechanic’s lien statutes include a provision invalidating liens which have been willfully exaggerated. The purpose is to protect project owners against contractor overreaching. Contractors should not be allowed to overstate the amount they are owed in order to gain leverage through a larger security interest in the property.
Does this mean that any front-loading or misrepresentation should invalidate a subsequent lien? A Florida court recently answered this question in the negative. A project owner sought to have a lien dismissed because the contractor had allegedly been submitting progress payment requests which included amounts it had not actually paid to subcontractors. The owner said the subsequent lien was tainted by fraud and had to be removed.
The Florida court rejected this argument. The contractor had not violated the lien statute itself. If the owner’s logic prevailed, contractor lien rights would be impaired. “The purpose of the liens would be undercut as liens could be subject to attack for inaccuracies or simply mathematical errors.”
What do you think? Should contractor overreaching during the payment application or claim process affect the contractor’s subsequent mechanic’s lien rights? Or is compliance with the lien statute at the time of filing all that should be required?
I invite your comments below.
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I think there is some merit to disallowing further liens to be filed on an property by a contractor who has been proven to have over billed or who has committed fraud associated with the provision of materials and/or labor to a specific property.
Posted by: Richard Parvey | 12/23/2010 at 10:22 AM
The general contractor should not be allowed to over bill . The invoice format set up by the architect or owner should require contractor to bill only for actual work done and the mark-up.
Having experience as owner, general contractor, and subcontractor, the value of the Lien should be based upon factual costs. There is a possibility that a particular subcontractor could submit bogus liens, or unmerited liens, but that should be another issue, the cost of which should be covered by corrected and justified action. Relief from cost associated with bogus liens should be treated separately from regular invoices.
Jerry Sullivan
Posted by: Jerry Sullivan | 12/23/2010 at 12:41 PM
If the contractor is involved in fraudulent requests for payment, those payments may be witheld administratively pending demonstration of their legitimacy. The lien rights of the contractor should remain in place because fraudulent behavior cuts both ways. I imagine a contractor's right to perfect the lien would be suspended by the court until resolution of any other action against his alleged breach of contract and good faith.
Posted by: Gary R. Collins, AIA | 12/24/2010 at 09:34 AM