Under Minnesota law, a contractor may collect reasonable attorneys’ fees in a mechanics’ lien foreclosure action even if the property is a homestead. The amount of the award is in the discretion of the court. That is not the case in every state as recently illustrated in Iowa.
Historically, Iowa has liberally construed its mechanics’ lien statute to promote restitution and prevent unjust enrichment. Iowa also has a longstanding history of protecting the homestead. Until recently, Iowa courts had never addressed the interplay between these competing interests. The Iowa Supreme Court recently decided Standard Water Control Systems, Inc. v. Jones, examining the intersection between Iowa Code chapter 561 concerning homesteads and chapter 572 regarding mechanics’ liens. The Supreme Court concluded that attorneys’ fees cannot be recovered by a mechanics’ lien claimant from a homestead foreclosure provided that the homeowners assert their homestead rights before a foreclosure decree is entered.
Standard Water Control Systems, Inc. v. Jones
In June 2013, Iowa homeowners hired a contractor to waterproof their basement. With 95% of the project completed, the contractor accidentally drilled through the home’s water and sewer lines. After the homeowners refused to pay their $5,400 bill or permit the contractor to finish the project, the contractor filed a mechanics’ lien foreclosure action against the homeowners.
Following more than three years of litigation, the Iowa Court of Appeals ordered the homeowners to pay most of the contractor’s bill but sent the attorneys’ fee issue back to district court. The district court entered a revised decree granting the contractor the right to foreclose a mechanics’ lien against the home for both the principal amount due and the contractor’s attorneys’ fees.
Two weeks before a scheduled sheriff’s sale of the home, and after the revised decree, the homeowners asserted their homestead exemption for the first time, claiming that the district court violated their homestead rights by including attorneys’ fees in the mechanics’ lien foreclosure decree. The homeowners argued that their house could not be sold to pay the attorneys’ fees because it was their homestead.
Iowa Supreme Court’s Decision
The Iowa Supreme Court decided that “homestead rights generally prevail over a mechanics’ lien including attorney fees.” It concluded, however, that homeowners must raise the homestead exemption before a foreclosure decree is entered. In this case, the homeowners asserted their homestead rights too late because the foreclosure decree had already been executed. Therefore, they waived their right to claim the homestead exemption and the attorneys’ fees were properly included in the lien foreclosure.
Of course, the Iowa Supreme Court decision is nothing that cannot be changed by the state’s legislature. Such a bill, S.F. 458, is working its way through the Iowa Legislature and, if passed, will make it clear that attorneys’ fees would be recoverable in the foreclosure of a mechanics’ lien against a homestead. Subscribe to this blog and we will keep you posted on the outcome of that effort.