SUMMARY OF MECHANICS LIEN LAW FOR NEBRASKA As of 2011 Section Contents Pre-lien Notice(s) Name of Notice Who Must Use This Notice When How to Serve Verified or notarized? Section Contents Mechanic s Lien Who is Entitled to a Lien? When to File/Record Where to File/Record How to Serve Amount of Lien Property Subject to the Lien Furnishing Information Verified or Notarized Priorities Lien Release Bond Miscellaneous Issues Section Contents Lawsuit to Foreclose Lien Introduction When Where to File Arbitration Need a Lawyer? Page 1 of 11
General Notes Be Careful: The courts consider a mechanic s lien to be a privilege and not a right. You receive its benefits only if you strictly adhere to the state law requirements. Bottom line: miss a deadline by one day and you have lost it. Unlike other areas of the law where you can argue equities, find technical exceptions, and lawful excuses, there is no forgiveness here. In this case, knowledge is not only power, it s a necessity. In this State you will be writing down dates for at least three documents: a) Notice of Lien Liability; b) Mechanic s Lien; and c) lawsuit to foreclose the mechanic s lien. Write down all the deadlines in your calendar. Use a highlighter or red pen. If you have a staff, use a fail safe system by doubling up and putting it in their calendar also. This reminds you twice. The first calendar entry should be two weeks before the due date as a preliminary reminder. On the second calendar entry, do a white lie to yourself. Put the due date as one week before it is actually due as insurance in case you get busy or need legal advice. Time is money. You will waste a lot of valuable time running around and doing it at the last moment, as opposed to doing it early. PRELIEN NOTICE Years ago there was an attempt to pass model legislation which would apply the mechanic s lien laws to all the states equally. As a result, there was the enactment of the Uniform Simplification of Land Transfers Act. Apparently, Nebraska was the only state (1981) to adopt this portion of the act as relates to mechanics liens. By doing this, Nebraska borrowed upon many of the provisions of that Uniform Act. Because it adopted rather recently, the effect is there are not that many cases interpreting the Act. This state requires a Notice be sent out before the mechanic s lien is filed/recorded. For simplicity, this notice will be referred to as a Prelien Notice. The basic information on this Notice is as follows: Name of Notice: Notice of Lien Liability. Who Must Use this Notice: This prelien notice is required to be served only as to residential projects in which the owner is defined as a protected party under Section 52-129, including any of the following persons: Page 2 of 11
1. An owner of not more than four dwelling units in which there are no non-residential uses (no mixed use premises) Either spouse can be considered the owner for purposes of the contract, together with those in joint tenancy. 2. An owner of vacant land that is intended in the future to be improved and used as a residence. Commonly applies to spec or custom homes. 3. An owner of a condominium unit, even though it is part of an overall project of more than four units. Thus, there is no requirement of serving the pre-lien notice for commercial or industrial projects. Any potential lien claimant should serve this notice, whether general, subcontractor, supplier, or laborer. When: How to Serve: Verified or Notarized?: See Time Deadlines table. There is no set time limit. It can be served at any time after entering into your contract and prior to recording the construction lien. However, it is recommended that this be sent out immediately after entering into your contract. An owner cannot be required to pay twice for labor and materials, and is only obligated to pay liens to the extent there is a balance owing to the general contractor. If everything has been paid to the general contractor, your lien will not be valid. It is therefore crucial to serve it early. Serve the residential owner by certified mail, return receipt requested. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. A verified notice is all that is required in this state. The prelien notice does not have to be verified or notarized. MECHANICS LIENS Name of Lien: Construction Lien. Page 3 of 11
Who is Entitled to a Lien: A mechanic s lien is primarily for general contractors, subcontractors, laborers, as well as material/equipment suppliers. But it also covers such specialized services as excavation, fill, grading, changes to bodies of water, demolition, repair, removal of structures, seeding, sodding, miscellaneous landscape operations, surface or subsurface testing, boring, or analyzing, and a number of other construction services broadly defined. It covers architects, engineers, designers, and surveyors. Unlike most states that require the actual project to be commenced before design professionals receive their lien, this is not required in Nebraska. This would mean that an architect s preparation of plans would be lienable, even though the project never got off the ground or the plans were not used for actual construction. There are special issues as to supplying materials or equipment. There is a lien only if the materials were intended to be used and incorporated into the project. The intent is shown either by a contract, delivery tag, actual delivery to the site, or other evidence. There is also the requirement that the materials be used or incorporated into the improvements, including: A. Incorporated into the improvement or used-up as normal wastage in construction operations. B. Specifically fabricated for incorporation into the project and not readily re-useable, even though not actually incorporated; or C. Used for construction or for the operation of machinery/equipment and not used-up or incorporated into the improvement. For example, form lumber used for foundations that can be used on other projects. But you will have to deduct the salvage value from the amount of the lien. If you spent $100 for the lumber and typically use it for three projects before throwing it away, you could include $33 per project. Thankfully, delivery of the materials to the job site is presumed evidence that they were incorporated. In a recent Nebraska case, a lien was extended to an employee of the subcontractor for wages. Page 4 of 11
The statute lists specific examples of who is excluded: A. Persons with contracts for mining, removal of timber, sod removal, farming, or other contracts in which the activity is primarily for the purpose of realizing profit upon the disposal or removal of the objects removed; B. Contracts for planting, cultivation, or harvesting of crops, or for the preparation of the soil for the planting of crops; C. Contracts for services in connection with financing (survey, appraisal, underwriting, etc.). The Nebraska Supreme Court has limited liens to remote claimants. This means that only the following persons can claim a lien: A. General contractors or any other contractors or suppliers with a direct contract with the owner. B. Subcontractors and material/equipment suppliers to the general contractor. C. Material and equipment suppliers with a contract with a subcontractor. D. Sub-subcontractors (subcontractor with a subcontract with another subcontractor). E. Sub-sub-subcontractors (subcontractor having a contract with a sub-subcontractor). This means that an equipment/materials supplier does not get a lien if that person has a contract with another supplier. Further, a supplier does not get a lien if they have a contract with a subsubcontractor or lower tiered person. When to File/ Record: Where to File/Record: Format of Paperwork: See Time Deadlines table. Record the Construction Lien with the Register of Deeds in the county in which the project is located. Under new legislation in 2011 (Bill 254), the office staff at the Register of Deeds are strictly enforcing page margins. There must be a full blank 3 inches at the top of page 1 for recording information. The top left of the first page must have a return Page 5 of 11
address. The title of the document should be centered near the top of the first page. Also to be safe, it is recommended you have 1 in. margins left, right, and on the bottom. How to Serve: Amount of Lien: Within 10 days of recording the lien, you must serve the owner with a copy stamped by the Register of Deeds. The statutes simply mention sending the lien, but do not specify how. With analogy to other states, it would be a good idea to send certified. Primarily for unpaid labor, material, and equipment supplied. Generally, Nebraska limits the amount of the lien to the actual labor and materials incorporated in to the project. Attorney s fees, finance charges, or other fees and costs that do not reflect the actual work incorporated into the project are excluded. Section 52-136 of the applicable statute makes no provision for interest. The cost for rented tools, appliances, equipment, and machinery can also be included. If such materials are purchased, they can be part of a lien only if they were specially purchased for the particular project and they have been either consumed or have lost their value after completion of the project. A general contractor s lien is based upon the unpaid contract price, plus or minus change orders, deducts, breach of contract damages, or the repair cost to correct defective work. On the other hand, a general contractor can go to trial on the issue of whether there should be a deduction for defective work, and if so, how much. In other words, unless it is an obvious example, there is no need to deduct for possible damages for defective work at the time you file the construction lien. Leave this up to the judge at the time of trial. If there is no contract in place, the general s lien will be limited to the reasonable value of labor and materials conferred. Nebraska is one of the few states in the nation that allows what is called indirect or consequential damages. These are damages over and above the labor and materials conferred, and result from breach of contract. For example, if the owner wrongfully and prematurely terminates a contract, the contractor can incur extended overhead, impact and delay damages, and possibly even lost profits on other jobs because of the lack of capital. Nebraska actually allows these forms of Page 6 of 11
damages, but only if the contractor has substantially performed the contract. This means you do not have to do everything perfect, but you have done the overwhelming majority of the work properly and in good faith. An example would be 95% completion of a job before termination. But there is a catch. If the owner terminates you before substantial completion, you are not entitled to these consequential damages. It has been observed that this is a way for the owner to beat you out of these damages, and the Nebraska Supreme Court has actually confirmed this as being possible. Although it does not make sense, it is a result of the interpretation of the statute. A subcontractor s or supplier s lien is limited to the amount of the balance on their contract, assuming there is enough money still owed from the owner to the general contractor. In other words, if the general contractor has already been paid, a subcontractor s lien will have no effect. Both general and subcontractors will have their liens reduced by any mechanics liens recorded by persons in which they have a contract. Property Subject to the Lien: Furnishing Information: A mechanic s lien applies only to private projects. No lien is allowed in public projects against government property. Upon request, the general should furnish others with information about the owner so the required notices and lien can be filled out properly. Subcontractors and suppliers are aided in Nebraska in securing the information they need for their preliens and mechanics liens. All one needs to do is get a copy of the Notice of Commencement recorded in the Register of Deeds. This document is recorded at the beginning of the project and has much of the needed information for the filling out of your required forms. Verified or Notarized?: A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. A verified notice is all that is required in this state. The lien must be notarized but does not need to be verified. Page 7 of 11
Lien Release Bond: The owner may release a lien by depositing with the court or securing a surety bond for 115% of the amount of the lien. You will know this has occurred because the owner must record a Notice of Surety Bond. Although your lien will be released, you will continue as before with your foreclosure action and if you are successful, you will recovery against the bond. Miscellaneous Issues: Definition of Completion : Amending the Lien: Waiver of Lien: A Construction Lien must be recorded within 120 days after you last furnish labor and materials. Therefore, the date of completion is crucial. Warranty or call-back work will not extend the lien period. This applies to going back and fixing what you have already done. To be safe, assume the earlier date and file accordingly. As long as the statutory period has not run out, it is recommended you amend your lien if you need to increase the amount that is then due. If you do not do this, there is the danger that the court will hold you to the lower amount. You cannot amend this lien after the expiration of the 120-day statutory period. Nebraska is one of the few states that allows lien rights to be waived before or after you first start work on the project. Be very careful of what you are signing. LAWSUIT TO FORECLOSE LIEN Introduction: Your lien is not valid forever. Because it directly affects the owner s title, it has a limited shelf life and must be enforced within a short period of time. That enforcement is done by filing a lawsuit to foreclose. Just like the time deadlines for a Pre- Lien or Mechanic s Lien, the courts strictly construe these time limits which are called statutes of limitation. Again, if you are literally one day late, the lien is ineffectual. When: Bring a judicial proceeding within two years of recording the mechanic s lien. However, the owner may give a Demand to Institute Judicial Proceedings, and if so, you will only have 30 days after the demand to bring a judicial proceeding Page 8 of 11
foreclosure. There is considerable question as to exactly how you bring a judicial proceeding and it s nature. You should seek competent legal advice in this regard. Arbitration: Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry. Arbitration is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding with the same general rules of evidence, but more informal. On the other hand, you can only foreclose your lien through a court proceeding, not arbitration. So, how do you keep your arbitration rights and at the same time preserve your lien rights? Simple. You bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment. Need a Lawyer? In this country, every individual has the statutory right to represent themselves. This means they can prepare all necessary papers, appear at hearings, and actually try the case. In so doing, the court considers you to be acting either in pro se or pro per. Before making this decision, consider the following factors: 1. You are a professional and thoroughly know the ins and outs of not only the construction industry but of the project itself. The best lawyer on his or her best day will probably not know more than 50% of what you know. 2. How is your public speaking abilities? If you are uncomfortable speaking to a group, you will even more uncomfortable in court or arbitration. You could be the sharpest wit in town but may not be able to present your arguments. Remember, appearing uncomfortable is perceived as having deficiencies in your case. People usually think that if you are not comfortable about your own facts, then they must not be that strong. Page 9 of 11
3. If the other side has a lawyer, you might want to think twice about representing yourself. You will certainly know the facts quite well, but you may be blindsided by legal technicalities. 4. You may also want to think twice if this is a really nasty and emotional case. In other words, if the other side is going for blood. Having a lawyer can shelter you from this emotional trauma. No matter how strong you are, lawsuits are taxing not only on your time, but on your physical and emotional energies. 5. If you have a good case in which you have complied with technicalities and performed good work, you are essentially engaging in a collection action. These actions are typically very simple because there are few defenses or defects alleged by the other side. It makes it easier for you to represent yourself because it is more a question of when and how much they will pay as opposed to whether you will win at all. 6. If you have a binding arbitration provision, you may consider representing yourself. These proceedings are much more informal and the arbitrator tends to give you more leeway. There are also fewer rules and not they are usually not quite as strict. 7. You could consider representing yourself but get advice along the way from a lawyer. It is much cheaper that way. On the other hand, the lawyer cannot watch over every move and you might slip up. Many times lawyers can also help you with preparing the forms, simply putting your name on the pleading. You can also bring in your lawyer at the end to actually try the case. 8. Judges and courts do not give legal advice. They only help you with what forms to use. However, clerks can be invaluable in steering you in the right direction as far as where to file, time limitations, the nature of the form or pleading, etc. But, remember when it comes right down to the ultimate advice, they cannot help you. 9. Judges usually treat you the same as an attorney which means they expect strict compliance with the rules. Although some judges give you more slack, don t count on it. Page 10 of 11
10. The biggest dilemma is whether you should hire an attorney for a smaller case, typically in the $5,000 to $10,000 range. You have to watch this because you may eat up that amount in attorney s fees. You never make money on lawsuits, only lawyers do. Try to settle for the best price you can get and move on. Page 11 of 11