Lien mistakes can be disastrous. Contractors invest labor and materials into construction projects based on an owner's or higher-tiered contractor's promise to pay. Even when payments are not made, many contractors continue to perform hoping that a check will magically appear. By the time contractors realize that they must enforce their lien rights to have any chance of getting paid, they have sometimes invested millions into a project.
But, liens are tricky. In creating Oregon's lien law, the legislature balanced the interests of contractors, design professionals, residential and commercial owners, developers, lenders, and others. The diverse and often competing interests led to a hodgepodge of logical and illogical requirements. The consequences of missing a requirement vary from invalidating the lien to losing the right to recover attorney fees.
Three common — and easy to avoid — mistakes have to do with the lien filing deadline, giving notice, and using the right name.
Liens must be recorded before a 75-day deadline. Many contractors assume the days are measured from the last day the contractor performed work on the project site. But, the days are actually measured from that day or completion of construction, whichever is earlier. Completion of construction is when an owner or a lender posts a completion notice, the project is abandoned (i.e., no work for 75 days), or substantial completion.
Substantial completion is when the owner can use the project for its intended purpose. Since owners can often use a project long before every work item is complete (e.g., painting, parking, and landscaping), a contractor who calculates its lien filing deadline from the last day it performed may miss its lien deadline if substantial completion occurred earlier.
If construction is not complete and the lien deadline is calculated from the last day a contractor worked, contractors must use timecards or other records kept while the work was being performed to determine the last day worked. Dates on invoices, payroll forms, punchlists, or other summaries are often inadequate to prove the last day worked. Avoid the mistake of not keeping good daily records.
Labor and Materials
In Oregon, a contractor who follows all of the lien rules and is forced to go to court will get paid before a lender even if the lender recorded a security interest (e.g., a trust deed) in the property before construction. A contractor's ability to get paid before a lender is sometimes called "super priority." Super priority is powerful. Lenders will often pay a contractor with super priority when an owner has stopped paying even though there is no contract between the lender and the contractor.
The super priority rules are different for labor and materials. A contractor who filed its lien on time will have super priority for the labor it provided. But, the contractor will only have super priority for materials and supplies if it gave a notice of right to a lien to lenders who previously recorded security interests in the property with the recording office of the county. The notice must be delivered to the lenders within eight days of when the contractor delivered materials or supplies.
A common mistake is to assume that no pre-lien notices are necessary on commercial construction projects. Almost every contractor delivers materials or supplies to their projects and to have super priority for the amount owed for those materials or supplies, contractors must deliver a notice of right to lien to lenders.
If a contractor fails to give the notice, it must list the amount it is owed for labor separately from the amount it is owed for materials or supplies on its lien to have super priority for the labor. Estimating the amounts after the fact is risky. As projects are built, the amount owed for labor should be tracked (in writing) separately from materials and supplies even if the contractor is to be paid one lump sum for everything.
Who Are You?
Many contractors do not know their legal name. All contractors register a name for their companies with the Secretary of State, but at some point start using abbreviations (CCC instead of Construction Contractor Company, Inc.) or generalizations (Contractor Group). As a result, the name registered with the Secretary of State will be different from the name written on contracts and, occasionally, the name written on liens will differ from both the registered name and the contract name. As one Oregon contractor recently learned when its $5 million lien was rejected, getting your name wrong can be costly.
Contractors should confirm that the name they registered with the Secretary of State matches the name registered with the Construction Contractors Board, the name on their project documents (e.g., quotes, contract, letters, and invoices), and the name on their liens.
Many contractors also frequently do not know whom they contracted with, which is a mistake that can be equally as costly. Contractors must know who is supposed to pay them and make sure their correct name is written on the contract.
To avoid lien mistakes, contractors must keep accurate records and follow up on late payments quickly. Although liens are subject to many requirements, contractors lessen the risk of losing their lien rights by making sure they do not repeat the mistakes described above.
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