The mechanic’s lien is one of the most powerful remedies available under the law.  A mechanic’s lien is a right afforded to general contractors, subcontractors, and suppliers that, when preserved by following certain steps, grants the right to record a lien against benefited real property, foreclose on that property by action, be compensated out of the sale proceeds, and recover the attorneys’ fees and costs incurred in the action.  A mechanic’s lien is a strong incentive for landowners to ensure that contractors and suppliers are promptly and fully compensated for their services.

This is the third article in a series explaining the fundamentals of the most critical aspects of real estate law.  In this piece, I focus on the mechanic’s lien remedy under Minnesota law.[1]  Three distinct topics are considered below.  First, what are the threshold criteria necessary to have a mechanic’s lien.  Second, what are the three steps that must be followed to preserve a mechanic’s lien.  Third, what court process governs a mechanic’s lien foreclosure.

Essential Elements of a Mechanic’s Lien

Minnesota statute provides a comprehensive and lengthy statement of the circumstances that create a mechanic’s lien.[2]  Most critically, there must be a “contribut[ion] to the improvement of real estate by performing labor, or furnishing skill, material or machinery . . . whether under contract with the owner . . . or at the instance of any agent, trustee, contractor or subcontractor of such owner[.]”  Mechanic’s liens may be created by, among other things, alterations or repairs to land, fixtures, or buildings.

The person asserting the lien must show that the services rendered, or material furnished, relates to one of the criteria recognized by statute.  Provision of supplies or equipment for one of the improvements identified in the statute may be lienable.  For example, furnishing petroleum to a contractor for use in construction would be lienable.  On the other hand, furnishing services necessary to the continued operation of a business is likely not lienable (e.g., the regular removal of waste from a business is not lienable).

The Three Steps Required to Preserve a Mechanic’s Lien

Step 1: The Pre-Lien Notice

The general rule is that every person who enters into a contract with an owner of real property, or who has contracted with a subcontractor or material supplier to provide labor, skill, or material to improve real property, must provide a pre-lien notice to the landowner.  Subcontractors and suppliers must generally provide this notice within 45 days after first furnishing labor, skill, or materials for the improvement.  The language to be included in the notice is provided by statute.[3]  The notice must be served by personal delivery or certified mail.

There are certain exceptions to the pre-lien notice requirement.  Exceptions to the notice requirement include, but are not limited to, (a) where the general contractor is managed or controlled by substantially the same person as the owner, (b) for certain multi-family developments, and (c) for certain improvements to nonagricultural land.

Caution should be exercised in relying upon these exceptions.  The exceptions have been construed by judicial decision(s) and they are interpreted narrowly.  Moreover, there is no penalty for providing more notice than is required by law.  The cost and expense of providing unnecessary notice pales in comparison to the expense and time required to litigate the applicability of an exception.

Step 2: Recording the Mechanic’s Lien Statement

After the last item of work on the project is complete, the subcontractor or supplier must prepare and record what is known as a “mechanic’s lien statement.”  This must be recorded with either the county recorder or registrar of titles (depending upon whether the real estate is abstract or Torrens) and served within 120 days of the last item of work.  The statement must be served personally or by certified mail on the owner or the owner’s authorized agent.  The mechanic’s lien statement must include numerous items of information, including the first and last date of work, and the amount due to the subcontractor or supplier.  The lien will cease to exist if the lien statement is not properly and timely recorded and served.

Step 3: Initiating the Foreclosure Action

The third and final requirement to preserve a mechanic’s lien is to file a foreclosure complaint with the district court within one year of furnishing the last item of work (as identified on the mechanic’s lien statement).  The complaint should identify all parties having an interest in the land.  Shortly after the complaint is filed, a lis pendens must be recorded in the county land records.  This document provides notice to the world that there is a pending action in which the ownership of the property is contested.

Failure to take any of the three steps identified above may result in invalidity of the lien.  If a step is missed, the subcontractor or supplier would still have a claim against the general contractor for breach of contract, but there will likely be no recourse against the landowner or the land itself.

The Lien Foreclosure Action

The defense most frequently raised in a lien foreclosure action is that the work or material was defective and that there should be offsets to the amount of the lien.  There will be a phase of the lien litigation where the contractor or supplier can conduct discovery on any defenses raised by the owner.  A judge will hold a trial and determine the amount due and whether offsets are appropriate.  There is no right to a jury trial in a lien foreclosure case.

If the court determines that there is an amount due on the lien, the court will direct a sale of the real estate and a distribution of proceeds to satisfy the amount of the lien.  If there are multiple liens on the property, the Court will determine the priority of payment of the liens.

A contractor or supplier that successfully prosecutes a mechanic’s lien action is entitled to recover reasonable attorneys’ fees.  By contrast, a landowner that defeats a mechanic’s lien is ordinarily not entitled to recover its attorneys’ fees.  This difference gives contractors and suppliers substantial leverage in settlement negotiations.

[1]     Requirements governing mechanic’s liens vary among the States.  States require different forms of notice and/or allow a shorter or longer period to sue to foreclose a mechanic’s lien.

[2]   See Minn. Stat. § 514.01.

[3]   See Minn. Stat. § 514.011, Subd. 2.