Lien Procedures on Private Commercial Projects

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August 29, 2018
Author: Joseph B. Jaap

1. NOC Recorded and Posted by Owner, Part Owner, or Tenant
(a) Procedures for Notice of Commencement
Under Ohio Revised Code Section 1311.04, the owner (in this discussion, the term “owner” includes any owner, part owner, or tenant) who contracts to have a project constructed “shall” record a Notice of Commencement (“NOC”) in the county recorder’s office where the project is located prior to any work or materials being furnished to the project. The owner also must post and maintain the NOC at a conspicuous place at the construction site throughout the construction period, and provide a copy to the original contractor(s). The owner or original contractor must serve copies of the NOC upon any subcontractors and suppliers who request a copy, within 10 days after their request.

(b) Definition of “Serve” in Mechanic’s Lien Statutes
“Serve” means to deliver the required notice, affidavit or other document to the recipient by certified or registered U.S. postal mail, return receipt requested, or by sheriff’s service, overnight delivery service, hand delivery, or any other method which produces a written receipt, as provided in Ohio Rev. Code Section 1311.19. Whether or not the item was served by one of the specified methods, service is considered complete on the date the item is received if either:
(i) the person served acknowledges receipt of the item; or (ii) there is sufficient evidence that the person being served actually received the item. If an item is mailed, it is presumed to have been received three days after the date of mailing, unless a written acknowledgement, receipt, or other evidence provides proof to the contrary.

(c) Owner’s Failure to Record NOC or Provides Incorrect Information
If an owner fails to record the NOC, in certain circumstance the original contractor or lender may do so. If the NOC is not recorded, posted, or served as required, or if incorrect information is provided in the NOC, then the owner is liable for the expenses incurred by others to obtain such information and is liable to subcontractors and material suppliers for any loss of lien rights and actual expenses, including attorney fees, incurred by a subcontractor or material supplier as a result of incorrect information.

(d) Required Contents of NOC
The owner’s NOC must contain:
(i) a legal description of the real estate on which the project is located, i.e. the description in the owner’s deed,
(ii) a description of the project or improvement;
(iii) the name and address of the owner, part owner, or tenant contracting for the project;
(iv) the name appearing on the deed of the owner of the real estate, i.e. the “fee owner” (which might be different than the party contracting for the work);
(v) the name of any person designated to receive notices, i.e. the designee, if any, for the owner, part owner, or tenant;
(vi) names and addresses of all original (general) contractors;
(vii) the date the owner, part owner, or lessee first executed a contract with an original contractor for the improvement;
(viii) names and addresses of all lenders providing financing;
(ix) names and addresses of all sureties which are bonding any of the original contractors;
(x) a statement to potential lien claimants advising them to provide a Notice of Furnishing and to record a Mechanic’s Lien Affidavit in order to preserve their lien rights;
(xi) the name and address of the person preparing the NOC; and
(xii) an affidavit verifying the NOC information.

If any of this information changes during the project, the owner must record an amended NOC. The NOC should provide a specific commencement date for the project and an estimated completion date for the project or an event that will signify the completion of the project, such as the issuance of an unconditional certificate of occupancy or acceptance of final payment by the original contractor.

(e) Notice provided by NOC
Once an NOC has been recorded in the county recorder’s office, it puts others on notice that a project is in progress and that mechanic’s liens might be recorded against the project site.

This creates a potential title problem for the site. Although not created or defined by the mechanic’s law, it is recommended that owners record a “Notice of Completion” at the completion of a project, even if the NOC specifies the events or conditions upon which the project will be considered complete. This could help prevent title problems for the owner, since the law does not contain a mechanism to terminate the effect of an NOC that has been recorded in the county recorder’s records. Otherwise, there is nothing in the county recorder’s records to indicate that a project is complete and that the potential for mechanic’s lien claims has ended.

This problem might not surface until years after a project has been completed, perhaps when the owner tries to sell or refinance the project site. At that time, the owner could be asked to obtain affidavits or other assurances from the original contractors, subcontractors, and suppliers who no longer have any records, cannot be located, or are reluctant to cooperate, which could delay or stop the sale or refinancing.

2. Benefits of NOC
(a) Contractors, Subcontractors, and Suppliers should obtain the NOC
Every original contractor, subcontractor, and material supplier should obtain a copy of the NOC before working on a project or supplying materials, and should establish an administrative procedure that automatically serves such requests by certified mail on every project. The law requires the owner to furnish a copy within 10 days after receipt of a request by certified mail.

(b) The NOC Gives Information Needed for Filing Mechanic’s Liens
The owner’s NOC provides useful information to subcontractors, suppliers, and potential lien claimants. Lien claimants can copy most of the information from the NOC onto the Affidavit for Mechanic’s Lien if they need to record a Mechanic’s Lien. IF no NOC is available, then the lien claimant may need to hire an attorney, title examiner, or personally search the real estate records to determine the correct name of the owner and to obtain a legal description of the project site for the Mechanic’s Lien Affidavit. Any errors could invalidate the mechanic’s lien.

(c) The NOC Sets the Time of Priority of Mechanic’s Lien
One purpose of the NOC is that in most cases the date of recording the NOC for a project or a project phase will set the date of priority for all mechanics’ liens relating to the project or project phase that is covered by that NOC. Under prior law, all mechanic’s liens on a project related back to the time of the “first visible work or delivery of materials” on that project. There was always a question of when the first visible work or delivery occurred, which resulted in contested lien priority issues and uncertainty. The mechanic’s lien procedure provides a certain and objective date that establishes the priority for mechanic’s liens, i.e., the date of recording the NOC in the county recorder’s records. However, if an owner fails to record an NOC, the priority of all mechanic’s liens relates back to the “first visible work or delivery “at the project.

3. Questions about NOC
(a) What if the Owner Records the NOC before a Lender’s Mortgage?
Since the priority of all mechanic’s liens relates back to the time the NOC was recorded, all the liens will have priority over the mortgage lender if an NOC is recorded before a mortgage.

Similarly, if the “first visible work or delivery” happens before the NOC or mortgage is recorded, then some or all of the liens will have priority over the mortgage lender. Mortgage lenders may not fund the project if that happens. If a project is being financed, the owner must carefully coordinate recording of the NOC with any lender so that the lender’s mortgage priority is not lost. If the lender loses its mortgage priority, there probably will be costly delays while the owner takes complicated actions required by the lender to correct the mistake. Do not record an NOC until the owner or lender authorizes it to be recorded.

(b) What if the Owner Fails or Refuses to Record an NOC?
There is no direct penalty if an owner fails to record the NOC, even though the law says that the owner “shall” record an NOC. However, if the NOC is not recorded, then subcontractors and material suppliers are not required to serve a Notice of Furnishing to claim a lien. Thus, the owner and original contractor lose their protection against hidden, secret, or surprise liens. In some circumstances, the law does permit an original contractor or lender to prepare and record the NOC if the owner fails to do so. If not filed, the owner will be liable for the actual expenses incurred by a claimant to obtain information that should have been included in the NOC.

(c) What if an NOC contains Inaccurate Information?
If an owner prepares and records an NOC with inaccurate information or with omissions, and a lien claimant relies on the information in the NOC to file a mechanic’s lien, and the lien is void because of the inaccurate information, the owner is liable to the lien claimant for any loss of lien rights or for any actual expenses the claimant incurred to maintain its lien rights. An amendment to a Mechanic’s Lien Affidavit may be recorded to correct omissions or erroneous information provided by an NOC. The owner’s NOC also must be amended to include any additional original contractors, sureties, or lenders which become involved in a project. Lien priority is not changed when an amendment is recorded, and lien priority is determined by the date the original NOC was recorded.

(d) How can a Copy of the NOC be Obtained?
A subcontractor, material supplier, or laborer can request, by certified mail, a copy of the NOC from the owner, or from the original contractor or subcontractor with whom it has a direct contract, if either of them has been provided with a copy of the NOC. The copy of the NOC must be served within 10 days after the request.

1. Subcontractor/Material Supplier Serves on Owner and Original Contractor
(a) Procedures for Notice of Furnishing
The Notice of Furnishing (“NOF”) is the other major document required by the mechanic’s lien law. It is intended to give notice to owners and original (general) contractors that a subcontractor or lower-tier subcontractor will be working on the project or that a material supplier will be providing materials or supplies for the project, so that the owner can avoid hidden, surprise, or secret liens. Whenever an NOC has been recorded for a project, a subcontractor or material supplier must serve an NOF on the owner and the original contractor within the specified number of days, to obtain the maximum coverage under a mechanic’s lien, except it does not have to serve a copy on the party with whom it has a direct contract.

(b) Content of NOF.
Much of the information about the project that is required in the NOF can be obtained from the NOC. The NOF must provide:
(i) the name of the owner, part owner, or tenant who contracted for the project,
(ii) the original contractor through whom a subcontractor is working or a supplier is supplying materials,
(iii) a description of the property,
(iv) the name and address of the person furnishing work or materials who is submitting the NOF,
(v) the name and address of the contracting party to whom work or materials are furnished (which might be the original contractor, or for lower-tier subcontractors or suppliers, a subcontractor),
(vi) the date work or materials first were or will be furnished, and
(vii) the book and page at which the owner’s NOC was recorded (if any).

Some of this information can be found on the copy of the NOC posted on the project site, or it can be obtained by requesting a copy of the NOC by certified mail.

(c) Service of NOF
The subcontractor or material supplier signs and dates the NOF and “serves” it on the owner and the original contractor by certified mail, return receipt requested, or other acceptable method, except that someone who contracts directly with the owner or original contractor does not have to serve a NOF on that party.

(d) Owner’s Actions upon Receipt of NOF
To protect itself from liens after making payments to its contractors and suppliers, the owner should make sure that all subcontractors and suppliers who provide a NOF receive payment on the project. After a subcontractor or material supplier serves the NOF, the law authorizes the owner to pay it directly and then set off that amount against amounts owed to the original contractor or subcontractor who employed that subcontractor or material supplier.

2. Time Requirements to Serve NOF
(a) When Must the NOF Be Served
Once an NOC has been recorded for a project, a subcontractor or material supplier has days after it first furnishes work or materials to serve its NOF upon the owner or the owner’s agent designated in the NOC, i.e. the owner’s designee, if any. If the subcontractor or supplier serves the NOF within 21 days, then its lien will be effective (if its Mechanic’s Lien Affidavit is properly recorded later and a copy served on the owner within 30 days), and its lien will share equal priority with other mechanic’s liens as of the date that the owner’s NOC was recorded.

(b) Effect of Delay in Serving NOF
If the subcontractor or material supplier does not serve its NOF upon the owner and contractor promptly, but delays and serves its NOF after its initial 21-day period expires, its lien rights are not lost entirely. However, its lien will cover only the work or materials it furnished during the 21-day period immediately preceding the date that it finally does serve its NOF, and any work or materials furnished thereafter. Its lien will have priority as of the date the NOC was recorded, but its lien rights are lost totally for any work or labor it furnished earlier than that 21- day period. It will still have an unsecured contract right to be paid for that earlier work or materials, but a subcontractor or material supplier should always serve its NOF promptly upon initial involvement with a project in order to preserve the opportunity to secure its claim with a mechanic’s lien for the full value of its work or materials. It should establish an automatic administrative procedure to do so on every project.

(c) No NOF Required Until NOC is Recorded
A subcontractor or material supplier does not need to serve its NOF unless and until the owner’s NOC has been recorded. However, once the NOC has been recorded, a subcontractor or material supplier who already has furnished work or materials must serve its NOF within 21 days to maintain full lien rights covering all its work or materials. A subcontractor or material supplier might not know when and owner records its NOC, so it will not know that the 21 day time period has begun. Therefore, it should be a standard administrative procedure for subcontractors and material suppliers always to request a copy of the owner’s NOC and to serve an NOF before furnishing work or materials. If an NOC is not available or has not been recorded, a prudent subcontractor or material supplier will find out why before getting involved.

(d) Original Contractors and Laborers Not Required to Serve NOF
Original contractor(s) and laborers are never required to serve an NOF. A material supplier who has a contract directly with the owner does not have to serve the NOF on the owner, and a subcontractor or material supplier who has a contract with the original contractor does not have to serve the NOF on the original contractor. If the owner or original contractor does not record a NOC on a project, then the NOF is not required from subcontractors or material suppliers. In any of these cases, a lien claimant simply records a Mechanic’s Lien Affidavit within the appropriate time limit and serves a copy on the owner within 30 days by certified mail to obtain its mechanic’s lien.

1. Lien Claimant Records Affidavit
(a) Procedures for Affidavit of Mechanic’s Lien
To claim a valid mechanic’s lien when an NOC has been recorded for a project, a subcontractor or material supplier must serve the NOF upon the owner or owner’s designee and the original contractor, and serve it within 21 days after starting on a project to get maximum coverage for all work and materials. If an NOC has not been recorded, then no NOF is required.

The lien claimant must both:
(i) record a Mechanic’s Lien Affidavit within the proper number of days for recording (within 75 days on a non-residential project and some residential projects, or within 60 days or sooner on other residential projects), and (ii) serve a copy of the recorded Mechanic’s Lien Affidavit on the owner within 30 days by certified mail, with return receipt, or by another authorized method as described in the section above regarding NOCs.

(b) Contents of Affidavit of Mechanic’s Lien
A lien claimant, or lien claimant’s agent, shall make and file for record in the office of the county recorder in the county or counties in which the improved property is located, an affidavit that includes:
(i) the name and address of the lien claimant,
(ii) a legal description of the property to be charged with the lien,
(iii) the name and address of the person to or for whom the labor or work was performed or material was furnished,
(iv) the name of the owner, part owner, or lessee, if known,
(v) the amount due and any set-offs, and
(vi) the first and last dates that the lien claimant performed any labor or work or furnished any material to the improvement giving rise to his lien.

If the affidavit is recorded, the omission or inaccuracy of any address in the affidavit does not affect its validity. To be recorded, the signature of the lien claimant or the lien claimant’ agent must be notarized.

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