Getting Paid on Construction Projects in Ohio

» Articles » Construction Articles » Article

August 14, 2018
Author: Michael C. Surrey, Esq.


I. A Checklist of Information Required to File a Claim

A. As with all aspects of mechanic’s liens, the statute dictates and should be complied with exactly as written.

B. Private Jobs – O.R.C. §1311.06(A)
1. The amount due the Claimant over and above any legal setoffs.
a. The affidavit must set forth the amount of any setoffs or explicitly that none exist. There is case law to the effect that the omission of this language is fatal to the lien. C.C. Constance & Sons v. Lay, 122 Ohio St. 468 (1930).
b. The same standard is not applied to the actual amount, in that a misstatement of the amount due will not invalidate the lien absent bad faith or dishonesty. Tinkey Lumber Co.
v. Lay, 32 O.L.R. 392 (Richland Co. App. 1930).
2. A description of the property.
a. The description will be sufficient if it enables one familiar with the area in which the improved property is located to identify the property. Shannon Co. v. Wurlitzer, 45 Ohio App. 194 (Hamilton Co. 1932).
b. The lien claimant may rely upon the description contained in the notice of commencement. 11 U.S.C. §1311.06(D).
3. The name and address of the person to or for whom the labor or material was provided.
4. The name and address of the contracting owner, part owner or lessee of the improved property, if known.
a. Owner, part owner and lessee are a defined term at O.R.C. §1311.01(A) to include all interests in the real estate being improved.
b. The failure to name all of the owners will result in a lien attaching only the interests of those owners named. Capital City Lumber Co. v. Ellerbrock, 177 Ohio St. 159 (1964).
5. The name and address of the claimant.
6. The first and last dates that the claimant provided work or materials to the project.

C. Public Jobs – O.R.C. §1311.26
1. The amount due and unpaid for the labor and work performed and material furnished with all credits and setoffs thereon.
2. When the last of the labor or work was performed and when the last of the material was furnished.
3. The post-office address of the claimant.

D. Other helpful information
1. A copy of the notice of commencement recorded on the job and, if applicable, the notice of furnishing provided by the client.
2. A copy, or other means of identifying, any bond that has been supplied in connection with the project.
3. Although not necessary to prepare and file the lien, it is helpful to have the invoices, delivery tickets, account statements and other supporting documents that establish the nature and extent of the debt as well as any notice of furnishing documentation.
a. It is a client service to review these at the time of lien preparation to ensure that the documentation supports the lien sought to be imposed and to resolve any issues before filing as opposed to in response to a slander of title threat.
b. Information generally requested by owner or their designee, so it is helpful to have it up front.
4. In terms of public jobs, the following information is also helpful:
a. The correct governmental entity responsible for the project.
b. The money, if any, left on the job to be disbursed.

II. Preparing Mechanic’s Liens, Stop Notices (Lien on Public Funds) and Bond Claims / Elements of a Notice of Claim

A. Mechanic’s Liens (Tab A)
1. The statute provides that the affidavit can be executed by the claimant or an agent, which can include the claimant’s attorney.
2. A suggested, though not required, form is found at O.R.C. §1311.06(C).
3. Upon execution, the lien must be filed with the county recorder where the improved property is located. O.R.C. §1311.06(A).
4. When the lien must be filed is dictated by the nature of the property being improved.
a. If the lien arises in connection with a one- or two-family dwelling or a residential unit of condominium property, the lien must be filed within 60 days of the date that the claimant last contributed work or materials to the project. O.R.C. §1311.06(B)(1).
b. If the lien arises in connection with oil or gas related properties, a specific sub-section applies – O.R.C. §1311.021.
c. For all other private property improved, the lien must be filed within 75 days of the date that the claimant last contributed work or materials to the project. §1311.06(B)(3).
d. There are some judicial exceptions that have been created to the filing deadlines set forth above, but they are isolated and narrowly construed.
5. Following the recording of the lien, the statute provides that the recorded lien must be served upon the owner, part owner, or lessee which contracted for the improvement, or its designee, within 30 days of the date that the affidavit is recorded with the recorder. O.R.C. §1311.07.
a. There are two methods of service authorized by the statute.
i. Serve the affidavit by any means authorized by O.R.C. §1311.19.
 - O.R.C. §1311.19(A)(1) authorizes service by sheriff of the county in which the party to be served resides or maintains its principal place of business in a method authorized by the Ohio Rules of Civil Procedure.
- This allows for personal service, certified mail service, residence service, service by publication and service by ordinary mail in the event that one of the methods described above is either refused or unclaimed.
- O.R.C. §1311.19(A)(2) authorizes service by certified or registered mail, overnight delivery or other method which provides written evidence of receipt.
- O.R.C. §1311.19(A)(3) authorizes service on a corporate recipient’s statutory agent. ii. Constructive service by posting a copy of the recorded affidavit at some conspicuous place on the improved property. O.R.C. §1311.07.
- This method can only be utilized if service pursuant to the methods described in O.R.C.
§1311.19 are not possible.
- The posting must be made between the thirty-first and forty-first days following the recording of the affidavit.
b. The failure to serve the lien in one of the manners described above within 30 days of recording is fatal to the validity of the lien.

B. Lien on Public Funds (Tab B)
1. The statement must be sworn, and must be based upon personal knowledge and not information and belief.
2. The lien must be served upon the responsible public authority within 120 days of the date that the last labor or material was provided by the claimant. O.R.C. §1311.26.
a. Service is to be accomplished in one of the manners specified in O.R.C. §1311.19, discussed above.
3. The lien must be filed with the county recorder or recorders where the project is located within 30 days of the service upon the public authority. O.R.C. §1311.29.
a. This requirement is not necessary as to the validity of the lien (as that is measured by service upon the public authority described above), but does impact priority in terms of subsequent payments coming due, as generally speaking there is no priority as between lien claimants who record their respective claims.
4. Upon receipt, the public authority must serve the principal contractor with a copy of the lien within 5 days of receipt.
a. The lien claimant is authorized to complete the service on behalf of the public authority. O.R.C. §1311.31.
b. The public authority, along with serving the lien, must provide notice to the principal contractor that if the claim is disputed, a notice to that effect must be given within the following 20 days. O.R.C. §1311.31.
i. If the principal contractor does not dispute the lien within the 20 days, it is conclusively presumed that the claim is valid and the public authority is authorized to pay the claim. O.R.C. §1311.31.
ii. Notice of dispute must be in writing and directed to
the public authority. O.R.C. §1311.31
a. The intention must be clearly manifested. General language indicating a problem with the situation will not suffice. Lee Turzillo Contracting Co. v. Cincinnati Met. Housing Auth., 10 Ohio St.2d 5 (1967).
5. Receipt of the notice of claim further charges the public authority with withholding funds for the benefit of the lien claimant from any payments due the prime contractor. O.R.C. §1311.28.
a. The public authority is not obligated to withhold funds for a lien claimant that is not in direct privity of contract with the principal contractor until the public authority has also been served by the lien claimant with a copy of the notice of furnishing and a sworn statement setting forth the date that the notice was originally provided to the principal contractor. O.R.C. §1311.28.
6. If the public authority fails to discharge the claim and make any required payment to the lien claimant, the affected claimant may bring an action in common pleas court against the public authority, with the possibility of recovering attorney’s fees. O.R.C. §1311.311.
7. It is important to note that the public authority has the first claim to the funds otherwise due the principal contractor for purposes of project completion.
a. This allows the public authority to set off any claims it has against the principal contractor against those funds, including claims for defective performance and/or completion of the project. State ex rel. General Electric Supply Co. v. Jordano Electric Co., 53 Ohio St.3d 66

C. Bond Claims
1. In many construction projects, especially public projects, the owner requires the general contractor to post a bond to ensure completion of the project and payment of those providing labor and/or materials to the project. These bonds are also undertaken as between general contractor and subcontractor and down the line.
2. The purpose of the bond depends upon the type of bond granted.
a. Performance Bond: contract given to the owner by the surety to complete the contractor’s performance if the contractor is unable to continue on the project or if the contractor must be terminated for cause.
i. The surety is responsible for obtaining and paying replacement contractor to complete the scope of work.
b. Payment Bond: contract given to the owner by the surety to pay any contractors, subcontractors or suppliers who furnish work or materials for a project but are not paid.
i. The surety is responsible for the payment of all valid claims for labor and/or materials provided.
3. Claim Procedures
a. Any party seeking to make a claim on a bond must pay close attention to the procedures outlined in the bond itself as to when a claim need be filed, what the claim must consist of and to whom the claim need be sent.
b. The claim must be supported by documentation that establishes that the labor and/or materials were actually furnished by the claimant, that all such labor and/or materials met the plans and specifications of the project, were free from defects and were timely delivered.
c. The surety stands in the shoes of the party to whom the labor and/or materials were provided and are able to assert any defense to the claim that the party originally receiving the labor and/or materials would.
d. Typically, a rudimentary claim is submitted to the surety setting forth the following:
i. The party asserting the claim.
ii. The name of the party to whom the labor and/or materials were delivered.
iii. The amount of money owed on the claim.
iv. A copy, or other means of identification, of the bond under which the claim is being made.
e. Upon receipt, the surety typically acknowledges receipt and provides a standard proof of claim form for execution and return by the claimant along with supporting documentation to the claim.
f. Upon receipt of the proof of claim, the surety makes its determination as to the merit of the claim.
i. This process is generally time consuming and is impacted by many factors, including the extent to which the surety has had to finish the job and whether litigation has been commenced on the project.
g. In the event of no determination or an adverse determination on the bond claim, the alternative is to file suit on the bond.
i. The statute of limitations on a private job is controlled by the general limitations period for written contracts at 15 years. O.R.C. §2305.06.
ii. However, the surety bonds almost always have a limitations period within the bond itself that dictates when a suit must be brought. These contractual limitation provisions have been upheld by Ohio courts. See Stake v. Seco Electric Co., 73 Ohio App.3d 371 (1991); Lane v. Grange Mut. Cos., 45 Ohio St.3d 63 (1989).
h. On public jobs, the limitation period on bond suits is noted in O.R.C. §153.56.
i. A statement of amount must be furnished to the surety by a laborer or materialman no later than 90 days after acceptance of the work by the public board or officer.
ii. A suit on the bond cannot be brought against the surety until after 60 days after the furnishing of the statement of amount.
iii. If the labor and/or materials are not paid by the surety at the expiration of the 60 day period, the laborer or materialman must commence suit not later than one year from the date of the acceptance of the public improvement.

III. Important Information a Title Search Will Reveal

A. A title examination can reveal information that is useful both pre- and post-filing of the lien.
1. Prior to the filing of the lien, it is imperative that you know the identity of the owner of the property and the description of the real property which you have improved, which information can be derived from a title search.
a. This would include the history of any transfer, as the present owner of the real property is the entity required to receive notice of the lien filing, which is not necessarily the same entity that was in title when the project commenced.
b. The title exam should provide the notice of commencement, which should have all the information needed in order to prepare the mechanic’s lien
2. In the stage where the determination is being made whether to foreclose on the lien, a title search will inform this decision by revealing the prior interests encumbering the property, the amount of such interests, the validity of such interests as well as tax valuations and obligations.
a. The mere filing of the lien generally places the customer into a technical default of their primary mortgage and service of the lien upon the mortgagee (as described below) may generate the pressure from the lender to get the lien addressed.
b. The prior liens filed of record should be reviewed to determine if any invalidity is apparent on the face of the instruments, as a priority challenge is another manner to have a lien paid quickly.
3. For several reasons provided by the statute, it is important to know the identity of any mortgagees on the property.
a. Generally speaking, non-construction, non-future advance mortgages will have priority over all mechanic’s liens provided that the mortgage was recorded prior to the visible commencement of work and/or the filing of a notice of commencement, but not those recorded after.
b. Future advance mortgages (i.e. those mortgages that contemplate one or more advances made subsequent to the original funding of the loan) also take priority over a mechanic’s lien, provided that the subsequent advances are mandatory.
i. If the advances are not mandatory, the future advance mortgagee could lose priority to mechanic’s liens asserted after the recording of the mortgage, but prior to the subsequent advance(s). This subordination would date back to the earlier of the visible commencement of construction on mortgaged property or the filing of a notice of commencement.
ii. The Ohio Supreme Court has held that in order for a future advance to be sufficiently mandatory, it must obligate the mortgagee to disburse a definite amount of money upon the occurrence of definite conditions or in a definite manner. Wayne State Building & Loan Co. v. Yarborough, 11 Ohio St.2d 195 (1967).
c. A different, though related, animal to the future advance mortgage is the Open-ended Mortgage as defined in O.R.C. §5301.232.
i. If the statute is complied with in terms of the language required by the statute, even nonmandatory advances made pursuant to an Open ended Mortgage will be superior to a mechanic’s lien, until such time as the mortgagee receives a notice from a mechanic’s lien claimant.
ii. The form, content and service requirements for this notice are set forth at O.R.C. §5301.232(C).
iii. The notice must contain the following information: the description of the improved property; the date and parties to the mortgage in question and the recording information for the mortgage; the nature of the work or materials giving rise to the lien; and, the amount that is claimed to be due.
iv. There is no method of service of this notice set forth in the statute, but it should be sent to the address noted on the mortgage itself.
d. Construction mortgages are yet another variant created by statute at O.R.C. §1311.14, and are afforded priority over mechanic’s liens from the time it is filed to the time that all funds have been disbursed, regardless of when the funds are actually disbursed.
i. In order to achieve this status, the following must be true: the mortgage must be recorded after the commencement of construction or the recording of the notice of commencement; the mortgage must contain the covenants/information set forth by the statute; the funds secured by the mortgage must actually be used to fund the improvement or to pay off prior encumbrances on the property, or both; and, the funds must be disbursed in the manner set forth by the statute.
ii. The statute provides that the construction mortgage must contain: the correct name and address of the mortgagee; a covenant authorizing the mortgagee to do all things provided for under the statute.

The material appearing in this web site is for informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided herein is intended only as general information which may or may not reflect the most current developments. Although these materials may be prepared by professionals, they should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

The opinions or viewpoints expressed herein do not necessarily reflect those of Lorman Education Services. All materials and content were prepared by persons and/or entities other than Lorman Education Services, and said other persons and/or entities are solely responsible for their content.

Any links to other web sites are not intended to be referrals or endorsements of these sites. The links provided are maintained by the respective organizations, and they are solely responsible for the content of their own sites.