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The Power 30

The POWER 30: Brian M. Sund

It’s often said that timing is everything, and that’s true in mechanic’s lien litigation. Minnesota Statute Sec. 514.05 states “All liens, as against the owner of the land, shall attach and take effect from the time the first item of material or labor is furnished upon the premises for the beginning of the improvement, and shall be preferred to any mortgage or other encumbrance not then of record, unless the lienholder had actual notice thereof.”

But sometimes the start date of the improvement is unclear, and the lienholder can lose priority. Visible staking, engineering, land surveying, and soil testing services don’t count. There is a starting time constraint on the lien, sometimes called the first visible improvement, and the ending is 120 days from the last day of work. If you’re wrong, you’re vanquished, said Minnetonka attorney Brian Sund. And don’t even think about using the wrong font on the notices.

Generally the lien litigation involves the general contractor, who is at the project every day and in the best position to know when the project is completed. That’s also the focus of many cases, Sund said.

But liens are very important to protect the rights of smaller businesses, like subcontractors, to be paid. The remedies include payment of attorney fees, a powerful provision. “The lien would lose value if there was no attorney fee provision,” Sund said.

Still, workers don’t always file lien or lien notices unless they have to, Sund said. “When the economy is sour that’s when mechanic’s lien litigation goes up,” he said. Owners and contractors start coming up with problems. “They can come up with reasons not to pay.”

The owner will have retained 10% of the cost until the project is final, which provides leverage, Sund said.

And once a lien is filed, more lienholders file. “Normally, if there is a lien filed it’s because there is something wrong with the financing,” Sund said. Then, if there is a foreclosure, all the lienholders have to be brought in. “The Legislature said, ‘We’re not going to piecemeal this. One lawsuit and one sheriff’s sale.’”

But what some would call a sour economy in 2020 didn’t bring a surge in lien litigation, Sund said. That’s likely because of the stimulus package. In 2008 when the market crashed, his mechanic’s lien practice doubled. But now, construction is up. That may change as the inflation rate grows, Sund said.

Material prices are going up now but most standard contracts don’t have price escalation provisions. They may be included in bid proposals but also may get negotiated away. “It’s really risk shifting,” Sund said. Many problems have to be worked out between the general and the subcontractor, Sund said. “A general contractor who is doing well will be able to choose his subcontractors. The subs will want to work with the contractor again, so … don’t make the cook mad.”

 

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