Recording Liens on Subdivisions

By: Rebecca Bowers and Ted Levy

Preserving lien rights on a new residential development can be a very slippery slope for building material suppliers and contractors.  It is tempting to view the development as ONE project with ONE start date and ONE completion date. However, if you are thinking about preserving the right to file a mechanic’s lien, at least two questions need to be asked and answered to determine the filing requirements:

1. Is there a single developer building homes where title transfers upon completion of the house? (This is often referred to as “spec construction.”) Or, has a consumer purchased the land and hired the builder to construct his dream residence? (This is generally referred to as a “custom build.”)

2. Does the residential development contain both spec construction and custom build projects?

Just to make things interesting, let’s place this hypothetical subdivision project in Washington State, which requires a claim of lien be recorded within 90 days of final performance or shipment or goods.  If the “90” day rule sounds familiar, that is because many states have chosen to mirror the federal construction statute, also known as the Miller Act, which requires claimants to submit a claim within 90 days of final performance.

Guidelines for Processing Preliminary Notices:

1. If a single developer is building all of the spec homes, and title transfers when the residence is completed, then it is probably adequate to send one preliminary notice. Of course, the notice should identify all of the lots that are within your scope of work.
2. If a consumer has purchased the land and hired a builder to construct his home in the subdivision, then a separate preliminary notice should be mailed to the builder and that home buyer. If the builder sells 20 lots, each to a unique consumer, that would require 20 preliminary notices.
3. In some instances, we’ve seen developers sell lots to a consumer who is then allowed to choose his own builder. This would simply be a variation of #2 above and require separate notices.

The Importance of Determining Ownership

Sometimes the developer is willing to provide current title information, but there is really no incentive for him to cooperative with requests from building material suppliers, contractors or equipment vendors. While many county recorders and assessors offer access to property ownership recorders, new residential developments are excluded because the street addresses haven’t yet been assigned by the postal service.

At Levy · von Beck & Associates, P.S., we’ve know that identifying lots without a street address presents a major hurdle when it comes to preserving lien rights. That is why our firm pays for access into the very same title database used by most title companies.  This additional resource is just one way that our firm distinguishes itself from most other preliminary notice vendors.

Guidelines for Filing Mechanic’s Liens

Here is one simple guideline regarding your lien deadlines on residential subdivision projects:

• Treat each lot under construction as an individual project and record your lien within 90 days of completion of work or materials furnished to that project.

In Washington, this guidance comes directly from RCW 60.04.101 which states:

“When furnishing labor, professional services, materials, or equipment for the construction of two or more separate residential units, the time for filing claims of lien against each separate residential unit shall commence to run upon the cessation of the furnishing of labor, professional services, materials, or equipment on each residential unit…”

The Washington statutes are not unique in their interpretation of this requirement. In fact, we believe this rule should be followed for residential subdivision projects in most, if not all, states.

Of course, this creates more overhead for potential lien claimants because of the requirements to:

• Set up individual job accounts
• Identify specific lots on invoices
• Track final shipments to each lot
•  Track lien deadlines by lot number

When supplying to a subdivision, we recommend that you obtain and identify each the lot number or street address where labor or materials are to be provided. If site addresses are not available, property ownership can be researched by knowing the parcel numbers that relate to each lot in the project.

You’re not alone if this seems burdensome, which is why suppliers and contractors choose to outsource the task to our firm.  Levy · von Beck & Associates, P.S.  We have received and processed over 220,020 preliminary notices for projects occurring in all 50 states. These project types include single family residences, subdivisions, commercial projects, state, city, county, tribal and federal construction work.

Remember, it is important to consider that lien rights held by a supplier or subcontractor may lapse if you are focused on completion of the entire subdivision. There may be multiple lien deadlines depending on when each lot is completed. The sale of a piece of property inside the subdivision could also affect the lien deadline calculation.

Part of the Levy · von Beck & Associates methodology is helping our clients take an active approach to protecting their receivables. Our goal is to help clients be fully informed about these technical requirements as well as to help them avoid the issues faced in the 2007 financial crisis.  If you have any specific questions regarding the article above, please feel free to call.