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In the June 2015 issue of Southern Nevada Business Magazine, Shemilly Briscoe is included on their “Legal Elite” list. She is one of 80 UNLV William S. Boyd School of Law alums to be named to the list. The list itself includes only 4% of attorneys in Nevada and is meant to assist prospective clients in their selection of counsel.
This document gives a brief description of some central aspects of mechanic’s lien law. It is not meant to serve as a comprehensive overview of the numerous statutory and common law concerns and intricacies surrounding mechanic’s liens in Nevada and does not constitute legal advice.
1. What is a Mechanic’s Lien?
Generally, a lien is a legal interest or right that a creditor has in another’s property lasting usually until the debt that it secures is satisfied. A “construction lien” is a statutory lien in favor of contractors, materialmen, and others to secure payment of labor rendered and services provided. A “construction lien” is also known as a “mechanic’s lien,” “materialman’s lien,” “subcontractor’s lien” and various other names. The Nevada statutory scheme, Chapter 108, refers to these liens as “mechanic’s liens” and sets forth the scope and requirements for perfection.
The principle underlying mechanic’s liens in Nevada and every state is that those who have their lands improved should pay for the labor rendered and the materials delivered. All 50 states have adopted mechanic’s lien laws. An attorney is not required to prepare mechanic’s liens, they can be prepared in-house or by an outside service.
2. Who is entitled to a Mechanic’s Lien in Nevada?
Any person who provides work, material or equipment with a value of $500 or more which is used in the construction, alteration or repair of any improvement, property or work of improvement is entitled to a mechanic’s lien. The statute sets forth specifically that the following individuals are entitled to mechanic’s liens:
• Artisans • Builders • Contractors • Laborers • Lessors or renters of equipment • Materialmen • Miners • Subcontractors • Architects • Engineers • Land Surveyors • Geologists • Any claimant who provides work, material or equipment.
*Per NRS 108.222(2) if a license is required to perform the work, the contractor or professional will only have the lien if licensed to perform the work.
3. What Property Is Subject to a Mechanic’s Lien?
Mechanic’s liens attach to “the property, any improvements for which the work, materials and equipment were furnished . . . and any construction disbursement account.” NRS 108.222(1).
NRS 108.22172 states that “property” means:
• The land and all buildings
• Improvements and fixtures on the land and
• A convenient space on and about the land
• Development, enhancement or addition to property.
4. What is the amount that a claimant is entitled to?
If the parties entered into a contract for a specific price the lienable amount is the unpaid balance of the agreed price. NRS 108.222(1)(a).
If the parties did not agree to a specific price, then the lienable amount is the fair market value of the work, material or services that were provided. NRS 108.222(1)(b).
5. What priority does the claimant qualify for?
The following is the statutory priority of the various types of Mechanic’s Liens:
1. Labor claims.
2. Material suppliers and lessors or equipment.
3. Other lien claimants who performed under a contract with the prime contractor or any subcontractor.
4. All other lien claimants.
6. What is perfection and how can a claimant perfect its Mechanic’s Lien?
In order to prefect a mechanic’s lien, which is required in order to bring a complaint, claimants must take specific statutory steps.
Step 1 Service of a Pre-Lien Notice.
The first notice required to perfect a lien is the Notice of Right to Lien. All potential lien claimants must deliver a Notice of Right to Lien. Under NRS 108.245(1), the lien claimant may provide the Notice of Right to Lien “at any time after the first delivery of material or performance of work or services under his contract”. The Notice of Right to Lien should be recorded promptly. The purpose of the Notice of Right to Lien is to put the owner of the property on notice that the lien claimant may at a future date record a lien in accordance with applicable law.
The Notice of Right to Lien does not create a lien or encumbrance on the property but is required under statute to later record a lien. NRS 108.245(B). The Notice of Right to Lien must be delivered in person or by certified mail to the owner of the property. NRS 108.245(1).
Exceptions for Notice include:
• Those providing labor only are not required to provide a Notice of Right to Lien.
• The Prime Contractor who contracts directly with the owner is not required to give the Notice of Right to Lien.
Residential Projects: The 15 day Notice called a Notice of Intent to Lien is a statutory prerequisite to filing the Notice of Lien. The 15 day notice of lien does not have to be recorded but does have to be served by personal delivery or certified mail to an owner and prime contractor. NRS 108.226(6). The notice may extend the time to record a Notice of Lien for residential projects only.
Step 2 Recording and Service of a Notice of Lien.
The language and form of the Notice of Lien is set forth under NRS 108.226(5). This document is what people are referring to when they use the phrase “mechanic’s lien.” Contained in the notice is:
• The amount of the original contract
• The total amount of all additional or charged work, materials and equipment
• The total amount of all payments received to date
• The amount of the lien, after deducting all just credits and offsets;
• The name of the owner of the property
• The name of the person by whom the lien claimant was employed or to whom the lien claimant furnished or agreed to furnish work, materials or equipment;
• A brief statement of the terms of payment of the lien claimant’s contract; and
• A description of the property to be charged with the lien.
The Notice of Lien must be verified by the oath of the lien claimant. The timing of the recording is set forth in NRS 108.226(1). It must be recorded within ninety (90) days after the date on which the latest of the following occurs:
• The completion of the work of improvement;
• The last delivery of material or furnishing of equipment by the lien claimant for the work of improvement; or
• The last performance of work by the lien claimant for the work of improvement.
• Or the time to record is shortened 40 days by a recorded and delivered Notice of Completion. NRS 108.226.
Service of the Notice: The lien must be “served” upon the owner of the property within thirty (30) days after recording the Notice of Lien by delivering a copy to the owner personally; or if the owner is absent from his residence or place of business by mailing a copy by certified mail with a return receipt to the owner at his residence, usual place of business, or to his resident agent.
Step 3 A lawsuit is commenced to enforce the lien.
Construction Liens are effective for a period of 6 months from the date the Notice of Lien is recorded. NRS 108.233(1). The lien will not be effective beyond six months unless:
• A lawsuit has been commenced to enforce the lien; or
• A tolling agreement is in place (not to exceed six months)
7. How does a claimant foreclose on a mechanic’s lien?
A lien claimant must wait 30 days from recordation of the Notice of Lien to initiate a foreclosure action. NRS 108.244. An action to foreclose the lien may not be brought any later than six months after the lien was recorded unless the time was properly extended by a tolling agreement.
a. These documents are required to foreclose the lien:
1. The Complaint -Must be filed in a court of competent jurisdiction and should probably include additional contract and equitable based causes of action such as breach of contract, unjust enrichment, and others depending on the parties.
2. The Notice of Pendency of the Action (lis pendens) – Must be filed with the court and recorded with the Recorder where the property is located to provide constructive notice to the work of an alleged claim or interest in the property.
3. The Notice of Foreclosure – Published once a week for 3 consecutive weeks in newspaper in the County where the property is located. (Nevada Legal News). Also must be delivered in person or certified mail to all other lien claimant who had liens recorded against the subject property at the time the Complaint was filed.
b. The Statement of Facts Constituting Lien
Other lien claimants may join the foreclosure action by filing and serving a Statement of Facts Constituting Lien. This document looks similar to a complaint and lays out the legal and factual basis for a claimant’s lien. This is required a reasonable amount of time after the publication is received by other claimants. The other lien claimants should also file and publish a pendency of action to put all interests on notice. This process provides for the consolidation of claims into one action in the court for purposes of a foreclosure.
8. Who is entitled to Attorneys’ Fees and Costs?
The Court shall award the prevailing lien claimant the amount of their lien, their costs for preparing and recording the Notice of Lien including attorneys’ fees and costs. Also, the Court shall calculate and award interest pursuant to the contract rate or, if there is no contract, the legal rate. NRS 108.237.
9. How to Discharge a Mechanic’s Lien.
If the claimant receives payment or decides for other reasons to release its notice of lien, the Discharge or Release of Lien must be recorded with the County Recorder no later than 10 days after the lien has been satisfied or discharged. NRS 108.2437. It is recommended that the discharge is served to the owner and sent by certified mail.
By Shemilly A. Briscoe, Esq. and Timothy J. Geswein, Esq.
Reprinted from the Construction Law Section Newsletter, State Bar of Nevada (February 2010)
The Board’s mission to protect Nevada’s public’s health, safety, and welfare is met with a wide range of regulatory and disciplinary tools. Among these tools is the ability to place a contractor on probation for a period of time to correct issues or violations discovered during the Board’s investigation.
The Board may implement probation when the Board is able to suspend or revoke the contractor’s license or otherwise discipline a contractor but determines the issues to be correctable. The Board’s Order implementing probation typically include terms that require the contractor to appear for personal interviews with the Board, submit documents and financial records to the Board, submit all contracts to the Board, cooperate with Board investigations, as well as comply with all Nevada laws and administrative rules and the other terms of the Order that implemented probation during the
entire probationary period. In exchange, the contractor is able to continue business by completing existing projects and contracting to start new work. This allows the contractor to comply with State regulations and keeps the Board timely informed of such compliance.
Oftentimes, a probationary period is offered by the Board and accepted by the contractor in lieu of license suspension or revocation. Probation is for a fixed period of time, but the Board may extend the probationary period or suspend or revoke the license if the contractor fails in its obligations under the probation order. If the contractor successfully completes the probationary period, the Board will conduct a hearing to lift the probation. During the probation period, the Board’s public records will reflect that the contractor is operating under probation as proper notice to the public. After exiting probation, the Board’s public records will be updated to reflect a successful end to the probation period.
Probation is an administrative burden on the Board because it consumes substantial resources to review, interview, and supervise the contractor. In some aspects, probation is a recognition that the contractor, although previously non-compliant with Nevada law, is worth the public’s investment in supervision to rehabilitate the contractor, to correct minor issues, and to encourage better business practices.
At first blush, few contractors would welcome the Board’s close supervision. However, the Board’s efforts strike a good balance between protecting the public and the contractor’s business interests. The probation period gives the contractor an opportunity to redeem itself not only in the eyes of the public and the Board, but to correct its business practices and operations. This opportunity should not be wasted by the contractor; by embracing the chance to improve internal controls and operations, the contractor can not only satisfy the Board that the contractor can be a valuable licensee, it can
save the contractor’s business.
By Shemilly Briscoe, Esq. and Timothy J. Geswein, Esq.
Reprinted from the Clark County Bar Association’s Magazine The Communiqué Vol. 30, No 10 (October 2009)
Nevada’s licensed contractors feel the pinch of tough economic times in two fundamental ways. First, contractors find that project owners are unable or unwilling to pay for the work performed. Second, contractors have discovered that the effectiveness of their traditional enforcement mechanism—the timely recording of a mechanics lien and foreclosure—has been eviscerated by dramatic declines in real property values. As a consequence, many contractors are finding themselves in protracted and expensive litigation that results in a seemingly valueless judgment and foreclosure right.
Non-payment for work escalates
The Nevada State Contractors’ Board (Contractors’ Board) is charged with the enforcement of Chapter 624 of the Nevada Revised Statutes with the intent to promote public confidence and trust in the competence and integrity of licensees and to protect the health, safety and welfare of the public. NRS 624.005. A portion of that responsibility is to accept, categorize, and resolve complaints received from the public, project owners, and other contractors. NRS 624.355.
The Contractors’ Board defines a “money owing” complaint as a complaint arising under NRS 624.3012(2). This statute authorizes disciplinary action against a licensee for “willful or deliberate failure” to pay any money when due for any materials or services rendered in connection with the contractor’s operations when the contractor has “the capacity to pay” or when the contractor has “received sufficient money” as payment for the particular construction work. NRS 624.3012(2). The Contractors’ Board’s data reveals that “money owed” complaints have approximately doubled even though the overall number of complaints has only grown at approximately 12 percent per year.
Indeed, the Contractors’ Board, analyzing the trend in its 2007-08 Annual Report, recognized that the increase in money owing complaints “may require the reallocation of certain investigative staff” and that “formal disciplinary proceedings and summary suspension of licenses may result” from the money owing complaints. However, the Contractors’ Board cannot enforce payment provisions; the Contractors’ Board can only discipline contractors. Bivins Constr. v. State Contractors’ Bd., 107 Nev. 281, 809 P.2d 1268 (1991). Therefore, contractors may have to litigate their contracts in order to receive payment for their work.
The pinch is from both the project owner and the subcontractors
Nevada law makes the general contractor responsible for payment to subcontractors in some situations. NRS 624.624. Additionally, the Nevada Supreme Court has cast uncertainty about the enforceability of contract clauses that seek to make the subcontractor’s right to payment contingent on a general contractor’s receipt of payment. Lehrer McGovern Bovis v. Bullock Insulation, 197 P.3d 1032 (Nev. 2008). These contract terms, known as “pay-if-paid clauses,” may violate Nevada’s public policy to pay subcontractors. Id. Consequently, a general contractor who attempts to contractually limit responsibility for payment to subcontractors may find itself still responsible for payment even though unpaid by the project owner. These obligations lead to going concern issues as well as disciplinary problems for contractors. Indeed, some contractors are going out of business or reducing payroll, including the elimination of management positions. Not only does this cause the loss of skilled labor and key staff, it leaves parties who are owed money with no alternative but to litigate to recoup for their work performed. However, litigation, although necessary, has its own perils because foreclosure rights are largely affected by property values.
Foreclosure rights eviscerated by declining real property values
Nevada’s statutory system permits a contractor to lien for the unpaid balance of the price agreed upon for labor, materials, and equipment furnished. NRS 108.222. Traditionally, contractors resist recording a mechanics lien until the last opportunity because the contractor hoped to resolve the unpaid bill. This traditional approach not only reduced costs, but it also preserved the relationship with the project owner. Key in this approach is the presumption that the real property’s value exceeded the unpaid amount.
However, in today’s economy, the presumption is oftentimes false. Title reports and bankruptcy filings routinely show commercial and other “revenue generating” properties are “underwater.” In these situations, the mechanics lien on the over-encumbered property is merely another stone in the avalanche of project woes.
Unpaid contractors are then faced with the sole option of suing and seeking to foreclose on the real property. To properly exercise this option, the contractor must make timely recordings and prevail on a civil suit that seeks foreclosure as a remedy. See, generally, NRS 108.239. Alternatively, when a project owner is in bankruptcy, a contractor must timely record, file a notice known as a §546(b) notice in the bankruptcy proceeding, and pursue payment as a creditor. Under either scenario, the contractor will find that, even though the mechanics lien statutes provide for summary proceedings that include the recovery of attorney’s fees and costs, the litigation expenditures are often substantial.
Project owners, facing litigation costs to preserve an economically unviable project, are making financial decisions that would have been unthinkable just a few years ago—they are permitting contractors to pursue litigation and acquire foreclosure rights rather than satisfy the mechanics liens. In fact, many project owners are halting work and seeking bankruptcy protection. Projects that were viable when ground was broken are now semi-completed and the subject of fierce litigation, not just between the project owner and the contractor, but between the lienholders and lenders regarding priority of claims.
Conclusion and recommendations
The current economic situation requires contractors— and the attorneys who assist them—to be more prepared and on guard for project failures than ever. Attorneys assisting contractors bidding on new work should recommend strict adherence to statutory obligations that protect rights should a new project encounter financial difficulty. For those attorneys assisting contractors in situations where the existing project has encountered financial difficulties, prompt action to preserve evidence and to control the contractor’s expectations are a must. An attorney assisting a contractor on a new project would be wise to carefully explain the importance of timely recordings and filings in order to preserve statutory rights. Likewise, an attorney assisting on a new project should encourage the use of construction control accounts with fund disbursement protections to minimize the risks a general contractor takes regarding subcontractor payment. A prudent attorney would also encourage the contractor to carefully document and execute change orders. Lastly, the attorney should recommend the contractor develop a clear internal policy regarding work stoppage for non-payment that complies with Nevada law. Attorneys assisting contractors who find themselves in negotiations or litigation regarding existing projects would be wise to recommend organization of all project materials and, if necessary, the taking of sworn statements from key persons to prevent the loss of testimony as workers disperse. Additionally, the prudent attorney should obtain a current title report to confirm not only the client’s priority, but the priority position of the other lienholders. In some situations, a property appraisal may be warranted to know, at the outset of litigation, the value of the property. Bankruptcy filings should be monitored. This information will permit the attorney to make a reasoned analysis of the litigation’s prospects and to evaluate the potential value of judgment and foreclosure right. Coupled with this analysis would be a careful explanation of foreseeable litigation costs and expenses so that the contractor may make informed decisions on how to proceed. Contractors face increased risks because of today’s difficult economy. However, an attorney can assist greatly in evaluating and preserving a contractor’s ability to be paid for the work the contractor performs.