Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Summer 2009, Volume 8, Number 1
by Gary F. Casaly, Special Counsel
The term “mechanics liens” refers to liens by persons and entities constructing, improving and demolishing real estate. Actually there are basically two types of mechanics’ liens — those that are related to labor (only) and those that relate to written contracts that can include services for labor, materials and other associated costs. These liens are covered by G.L.c. 254 and the aspects of these liens — including their creation, perfection, continuation, enforcement and dissolution or termination — will be the subject of this article. The purpose of this article is not so much to instruct how to collect amounts due for work done on real estate, but rather to lay a foundation for the conveyancer so that he or she may spot the salient facts that will rid (or plague) a title of these liens.
In this article there will be references to the “new” law – one that was passed in 1997 that wholly revamped the rules concerning these types of liens — and the “old” law (the pre-1997 statute). The “old” law is for the most part irrelevant to today’s mechanics’ liens but it and the cases that were decided under its provisions are instructive for purposes of highlighting some changes to the statute that occurred in 1997 and helping to understand how mechanics’ liens work generally.
The three main sections of the statute that have to do with the types of mechanic’s liens covered by this article are sections 1, 2 and 4. Section 1 has to do with liens for labor, section 2 has to do with written contracts concerning a general contractor, and section 4 has to do with written contracts concerning subcontractors (which includes contractors dealing directly with the general contractor and those further down the chain dealing with other subcontractors). Here are the relevant portions of those three sections:
A person to whom a debt is due for personal labor performed in the erection, alteration, repair or removal of a building or structure upon land or improvement or alteration to real property, by virtue of an agreement with, or by consent of, the owner of such building or structure, or of a person having authority from or rightfully acting for such owner in procuring or furnishing such labor, shall, under the provisions of this chapter, other than section four, have a lien upon such building or structure and upon such interest in such real property, land, building, structure, or improvement owned by the party authorizing or consenting to said work, for not more than thirty days’ work actually performed for the ninety days next prior to his filing a statement as provided in section eight.
A person entering into a written contract with the owner of any interest in real property, or with any person acting for, on behalf of, or with the consent of such owner for the whole or part of the erection, alteration, repair or removal of a building, structure, or other improvement to real property, or for furnishing material or rental equipment, appliances, or tools therefor, shall have a lien upon such real property, land, building, structure or improvement owned by the party with whom or on behalf of whom the contract was entered into, as appears of record on the date when notice of said contract is filed or recorded in the registry of deeds for the county or district where such land lies, to secure the payment of all labor, including construction management and general contractor services, and material or rental equipment, appliances, or tools which shall be furnished by virtue of said contract. Said notice may be filed or recorded in the registry of deeds in the county or registry district where the land lies by any person entitled under this section to enforce a lien, and shall be in substantially the [form specified in the statute].
Such person may file or record the notice of contract at any time after execution of the written contract whether or not the date for performance stated in such written contract has passed and whether or not the work under such written contract has been performed, but not later than the earliest of: (i) sixty days after filing or recording of the notice of substantial completion under section two A; or (ii) ninety days after filing or recording of the notice of termination under section two B; or (iii) ninety days after such person or any person by, through or under him last performed or furnished labor or materials or both labor and materials.
Whoever furnishes labor, including subcontractor construction management services, or who furnishes material, or both labor and material, or furnishes rental equipment, appliances or tools, under a written contract with a contractor, or with a subcontractor of such contractor, may file or record in the registry of deeds for the county or district where such land lies a notice of his contract substantially in the [form specified in the statute].
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Such person may file or record the notice of contract at any time after execution of the written contract whether or not the date for performance stated in such written contract has passed and whether or not the work under such contract has been performed, but not later than the earliest of: (i) sixty days after filing or recording the notice of substantial completion under section two A; or (ii) ninety days after filing or recording of the notice of termination under section two B; or (iii) ninety days after the last day a person entitled to enforce a lien under section two or anyone claiming by, through or under him performed or furnished labor or materials or both labor and materials to the project or furnished rental equipment, appliances or tools.
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Upon filing or recording a notice, as hereinbefore provided, and giving actual notice to the owner of such filing, the subcontractor shall have a lien upon such real property, land, building, structure or improvement owned by the party who entered into the original contract as appears of record at the time of such filing, to secure the payment of all labor and material and rental equipment, appliances or tools which he is to furnish or has furnished for the building or structure or other improvement, regardless of the amount stated in the notice of contract. Such lien shall not exceed the amount due or to become due under the original contract as of the date notice of the filing of the subcontract is given by the subcontractor to the owner.
If the person claiming a lien under this section has no direct contractual relationship with the original contractor, except for liens for labor by persons defined in section one of this chapter, the amount of such lien shall not exceed the amount due or to become due under the subcontract between the original contractor and the subcontractor whose work includes the work of the person claiming the lien as of the date such person files his notice of contract, unless the person claiming such lien has, within thirty days of commencement of his performance, given written notice of identification by certified mail return receipt requested to the original contractor in substantially the [form specified in the statute].
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The lien for personal labor under section 1 is a “secret” or “inchoate” lien, in that it arises when the labor has been (or is in the process of being) performed and can be perfected retroactively if a timely filing is made under section 8 of the statute (discussed below). It is “secret” as to persons who are dealing with (e.g., taking deeds, mortgages, etc. on) the property, but it is not “secret” as to the landowner. This is evident from the language in section 1 that persons performing work on the property will have a lien “other than [under] section four” for labor performed. The persons described in section 4, unlike those described in section 2, do not have a direct connection, nor do they contract directly with the owner. The statute’s language is for the obvious purpose of preventing “surprise secret liens” against the owner of the property on which the lien would be claimed for work for which the owner has no knowledge. That’s not to say that subcontractors and sub-subcontractors can’t have a lien on the owner’s property simply because the owner does not know of their existence. They can, by recording a notice of contract (but their liens arise when that notice of contract is recorded). But they can’t have “secret liens” against the owner’s property that will relate back in time.
In comparison to the section 1 lien, the lien under a notice of contract under a written contract under sections 2 and 4 arises upon the timely recording of the notice of contract, and does not “relate back.” As we shall see, various “time limits” must be carefully observed not only in the initial creation of these liens but also in “keeping them alive” — preventing them from thereafter terminating or dissolving. It is important to understand these time limits, not just for those who are creating these liens but in our case also for conveyancers who have to know when the liens can be ignored.
Let’s take the creation and perfection of the lien for labor under section 1. Once the work has been (or is in the process of being) performed, the all-important task of recording the statement referred to in section 8 is crucial. This statement is essentially an accounting of what is owed to the laborer and is the “trigger” that perfects the lien (retroactively) for up to thirty days’ work actually performed in the ninety days immediately next prior to the recording of the statement. Either jumping the gun (recording too soon) or delaying acting (recording too late) can have unwanted results. The recording of the section 8 statement with respect to these labor liens “closes the window” as to what is or can be liened. Let’s say that a laborer begins work on January 2 and during his or her work at the site, on January 15, but before the work is done, records the section 8 statement; and then he or she continues working for another ten days (to January 25). The recording of the statement on January 15 will enable the laborer to perfect the lien all the way back to January 2, but only amounts for work performed immediately prior to the recording of the statement will be secured by the lien; amounts due for work from January 15 to January 25 will not be effectively liened because this work occurred after the recording of the statement. On the other hand, if the laborer, during the period of billing and perhaps communicating/negotiating with the homeowner for payment, fails to take formal action and does not record the section 8 statement until May 5, no lien will arise because the filing can only “reach back” ninety days, or as far as the first part of February, which is after any labor had been performed.
Unlike in the case of a lien for labor, notices of contract — the document that gives rise to liens under section 2 and 4 — do not relate back, but there are nevertheless time periods during which these documents must be recorded in order for the lien to arise in the first instance. Also, these liens require the recording of section 8 statements (the same type of statement as in the case of section one liens). The time periods during which both the notices of contract and the section 8 statements must be filed are calculated differently than in the case of section one liens. The “window” during which these two documents — the notice of contract and the section 8 statement — must be recorded is anchored in one of three events, namely (i) the recording of a statement of substantial completion, (ii) the recording of a notice of termination or (iii) the time when work on the project ceased.
Notice of Substantial Completion. This is a document signed by the owner and the general contractor acknowledging not that the project is done but that it is substantially completed. This document, if filed, means that notices of contract — those of the contractor and any subcontractors — must be filed within sixty days thereafter and that the section 8 statements must be filed within ninety days after the recording of the notice of substantial completion. Note something important here: the recording requirements for the notice of contract and for the section 8, where a notice of substantial completion has been recorded, run from the recording of the notice of substantial completion and not sequentially as to each other. So, if a notice of substantial completion is recorded on March 2, the last day for recording a notice of contract would be sixty days from the recording of the notice of substantial completion (or May 1) and the last day for recording the section 8 statement would be ninety days from the recording of the notice of substantial completion (or May 31). The point is, that the ninety-day period for recording the section 8 statement is not “tacked on” from and after the recording of the notice of contract, but runs from the recording of the notice of substantial completion. If either of these time periods have expired the notice of contract is no longer a lien. This is important for the conveyancer to know in order to calculate when it is “safe” to ignore the lien. See the chart at the end of this article for a graphic characterization of these time limits.
Notice of Termination. This is a document signed by the owner only, essentially kicking the general contractor off the job. When this occurs and the document is recorded, the owner gives the general contractor notice and, as in the case of a notice of substantial completion, notices are sent out by the owner and the general contractor to alert others (e.g. subcontractors and persons who have “identified” themselves) that the window for filing claims will soon close. The “window” here is calculated a bit differently than in the case of a notice of substantial completion: This document, if filed, means that notices of contract — those of the contractor and any subcontractors — must be filed within ninety days thereafter and that the section 8 statements must be filed within one hundred twenty after the recording of the notice of termination. Again, the recording requirements for the notice of contract and for the section 8 statement, where a notice of termination has been recorded, run from the recording of the notice of termination and not sequentially as to each other. See the chart at the end of this article.
Time When Work on the Project has Ceased. The recording of a notice or substantial completion or of a notice of termination marks the time during which a notice of contract and/or section 8 statement has to be filed. Failure to observe the time requirements for the recording of these latter two documents in such a case will dissolve any lien. Just counting on your fingers will tell you if you are out of, or still in the woods. Another benchmark that governs when a notice of contract or section 8 statement can/must be filed is when work has ceased on the project. The time periods are the same as when a notice of termination had been recorded — ninety days and one hundred twenty days, respectively — but in this instance there is no empirical evidence (recording) that the benchmark has occurred. Affidavits from the owner are of no avail, as they are not statutorily sanctioned and in any event are self-serving. It becomes evident that without the recording of a notice of substantial completion or a notice of termination we are at a disadvantage in calculating the “outer limits” as to when a notice of contract or section 8 statement can/must be filed, and therefore cannot determine when the lien has expired. For remember, the statutes (section 2 and 4) tell us that a notice of contract can be filed “any time after execution of the written contract whether or not the date for performance stated in such written contract has passed and whether or not the work under such written contract has been performed.” The period is boundless, although it is “capped” by and calculated from the time of the recording of the notice of substantial completion or notice of termination (both of which are easy to establish) and by the amorphous benchmark of the time when work has ceased on the project, which we cannot determine.
When we see a notice of contract with no previously recorded notice of substantial completion or notice of termination we hit a brick wall — we can’t determine if the notice of contract is recorded too late to become a lien. But not all is so bleak. The secret ingredient that generally appears of record is the section 8 statement itself. Whether the notice of contract, or even the section 8 statement is timely filed or not — or, more accurately, even though we may not be able to tell if it was timely filed — the section 8 statement brings forth a new time element altogether. Once this statement is recorded it’s “off to the races” for the lienor. Sections 5 and 11, working together, help to resolve the dilemma. Section 11 says in pertinent part:
The lien shall be dissolved unless a civil action to enforce it is commenced within ninety days after the filing of the statement required by section eight.
Section 5 says in pertinent part:
A lien . . . shall be enforced by a civil action brought in the superior court for the county where such land lies or in the district court in the judicial district where such land lies. * * * An attested copy of the complaint, which shall contain a brief description of the property sufficient to identify it, and a statement of the amount due, shall be filed in the registry of deeds and recorded as provided in section nine within thirty days of the commencement of the action, or such lien shall be dissolved.
Note the two requirements imposed by these sections: (i) section 11 says that after the section 8 statement is recorded and action to enforce the lien must be brought within ninety days, otherwise the lien is dissolved and (ii) section 5 tells us that even if the action is timely brought the failure to record a verified copy of the complaint within thirty days thereafter will likewise cause the lien to be dissolved. The “old” law made similar provisions, including the recording of the complaint, but did not specify when the recording of the complaint had to take place. In other words, it didn't specify a time limitation. See National Lumber Company v. Lombardi, 64 Mass. App. Ct. 490 (2005).
The importance of the section 8 statement as the “trigger” that sets in motion various time limitations cannot be underestimated. Interestingly enough section 4 (subcontractor liens) actually contains a form of notice of contract that provides places to fill in such information as contract price, change orders and payments received, but it would appear that this is not sufficient to satisfy the requirements of section 8, because this latter section states that “liens under section . . . four shall be dissolved” unless the statement referred to in section 8 is recorded. Liens under section four contain certain financial information, so that information and the form it must take must be different than that contemplated in section 8, that makes direct reference to section four.
An important thing to know when it comes to mechanics’ liens is “who’s on first,” or in legal jargon, who has priority over whom? As noted, notices of contract become liens once recorded — they do not “relate back — so it’s easy to establish at the outset whether these liens have priority over, or are subordinate to ownership interests and/or mortgages of record: if the deed or mortgage is recorded and at that time no notices of contract appear of record the ownership interest or the mortgage will prevail over a later-recorded notice of contract. (In the case of construction mortgages, disbursements made after the recording of the mortgage can end up subordinate to a later-recorded notice of contract — although there is an important exception to this — and this is the reason that periodic rundowns, or date downs, are performed when these kinds of mortgages are used and when disbursements are made in connection with them.) Section 1 liens have different rules, and there are distinctions between how mortgages and ownership interests are treated. The statute that addresses priorities is section 7, which says:
(a) No lien under section one shall avail against a mortgage duly registered or recorded unless the work or labor performed is in the erection, alteration, repair or removal of a building, structure, or other improvement to real property which erection, alteration, repair, removal, or improvement was actually begun prior to the recording of the mortgage.
(b) No lien under section two shall avail as against a mortgage duly registered or recorded to the extent of amounts actually advanced or unconditionally committed (i) prior to the filing or recording of the notice of contract, and (ii) after the filing or recording of the notice of contract but within twenty-five days after the last day of the period stated in an accurate duly executed partial waiver and subordination of lien in the form required by section thirty-two, except for the amount of retainage accurately stated in such partial waiver and subordination of lien.
(c) No lien under section four shall avail against a mortgage actually existing and duly registered or recorded to the extent of the amount actually advanced or unconditionally committed prior to the filing or recording in the registry of deeds of the notice required by section four.
(d) No lien under section two or four of this chapter shall avail as against a purchaser, other than the owner or person acting for or on behalf of, or with the consent of, such owner who entered into the written contract on which the lien is based, whose deed or other instrument of title was duly registered or recorded prior to the filing or recording of such notices under said section two or four.
Under paragraph (a) a recorded mortgage will prevail over a subsequently recorded lien for labor if the mortgage was recorded before the work is started. This is why “taking a peek” at the property at the time of the recording of the mortgage is important.
Under paragraph (b) a recorded mortgage will prevail over a subsequently-recorded notice of contract by a general contractor with respect to (i) amounts actually advanced or unconditionally committed before the notice is recorded and (ii) such amounts disbursed in certain cases within twenty-five days after the notice is recorded.
Under paragraph (c) a recorded mortgage will prevail over a subsequently-recorded notice of contract by a subcontractor with respect to amounts actually advanced or unconditionally committed before the notice is recorded. (Note that the twenty-five day window is absent in this provision.)
Paragraph (d) is the only one that addresses priorities when it comes to ownership interests. Theses interests, although protected from liens thereafter arising under notices of contract, enjoy no protection as to liens by laborers.
With different effects on priority as between ownership interests and mortgages in the case of liens filed as notices of contracts versus liens for labor, the question would be whether persons who record notices of contract could also avail themselves of the limited lien protection under section 1 for laborers, or whether they would be excluded from doing so. It will be noted that under section 1, which governs laborer’s liens, the statute says that a person who has performed personal labor in connection with real estate “shall, under the provisions of this chapter, other than section four, have a lien” on the property for the personal labor. Section 4 (subcontractor’s liens) is singled out, or at least specifically mentioned in section 1. So it appears that subcontractors cannot file both section 4 and section 1 liens.
Other than the passage of time or the failure of the lienor to observe the “time lines” that the statute provides for preserving liens, the liens that arise under sections 1, 2 and 3 can be disposed of, or at least realigned by certain positive actions. These include judicially-imposed discharges, voluntary releases, subordination and the posting of bonds.
It goes without saying, and there’s no need for an extensive explanation of the court’s authority and ability to dissolve a mechanics’ lien. One thing that should be noted, however, is that under section 15A there is a mechanism by which the validity or propriety of a mechanics’ lien can be established. This is an important vehicle in cases where a lien has been improperly filed or where parties fail or refuse to execute documents that they are otherwise required to do so.
Section 10 provides for the voluntary dissolution of a recorded lien. It provides:
The lien of any person may, so far as his interest is concerned, be dissolved by a notice signed by him, stating that his lien is dissolved, filed in the registry of deeds where the notice of the contract is filed under which contract the lien is claimed.
This provision is pretty straight forward. Moreover, Section 30, much like G.L.c. 183, §54B concerning the execution of mortgage assignments, discharges and related documents, identifies those persons who may sign documents concerning mechanics’ liens. The relevant portions of the section provide:
Any notice or other instrument required or permitted to be filed or recorded by this chapter . . . and executed before a notary public, justice of the peace or other officer entitled by law to take acknowledgements . . . by a person purporting to hold the position of president, vice president, treasurer, clerk, secretary, or any assistant to the foregoing, principal, partner, proprietor, trustee, attorney or other similar position, of the entity entitled to record or file such instruments on behalf of such entity acting in its own capacity or as a general partner or co-venturer, or as assignee, agent or authorized representative, shall be binding upon such entity and shall be entitled to be recorded or filed, and no vote of the entity affirming such authority shall be required to permit recording or filing.
A related question concerning the dissolution of liens has to do with lien waivers — whether or not a person who has a right to file a lien can waive that right and whether a person who has already filed a lien can subordinate it. The general rule is that it is against public policy to require a person to relinquish his right to file liens, and the statute generally prohibits the waiver in advance of these rights, but with some notable exceptions. Section 32 provides:
A covenant, promise, agreement of understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance and appliance or other improvement to real property, including moving, demolition and excavating connected therewith, purporting to bar the filing of a notice of contract or the taking of any steps to enforce a lien as set forth in this chapter or purporting to subordinate such rights to the rights of other persons is against public policy and is void and unenforceable, but this section shall not apply to:
(1) waivers of liens given by any person named as a principal on a lien bond provided under section twelve in connection with an interim or final payment received by such persons;
(2) statements by persons entitled to file documents under this chapter of amounts due or paid to them;
(3) dissolutions of liens under section ten;
(4) partial waivers and subordinations of liens given by persons who have filed or recorded notices of contract under section two substantially in the [form provided in the statute].
Paragraph (1) carves out an exception to the general prohibition against waiving lien rights and permits the principal on those bonds known as “blanket” or “rolling” bonds (discussed later on) to give such waivers.
Paragraph (2) makes it clear that a section 8 statement does not violate the prohibition.
Paragraph (3) indicates that the prohibition does not limit the ability of a lienor to dissolve a lien as provided in section 10.
Paragraph (4) introduces a new concept, the partial waiver and subordination by general (but not sub-) contractors. This waiver, however, is not without limitations: it relates only as to (i) amounts paid and (ii) amounts that may become due for work done in the twenty-five days following the date when the waiver and subordination is given. To this extent the general contractor may waive future liens, but only within the limitations dictated by the statute. As noted, a subcontractor or a laborer cannot give such a waiver and subordination, as it would be prohibited by the statute.
Another way liens can be disposed of is by the posting of bonds. There are two sections that relate to bonds (sections 12 and 14), and it’s important not to confuse them or use the wrong bond for the wrong situation. A section 12 bond is a “blanket” or “rolling” bond. It is not a bond that addresses or dissolves any particular lien, but is used to prevent liens from piling up against the title to the property. It can be posted by anyone — most often the general contractor and sometimes the owner — in an effort to prevent the subcontractors or laborers from “choking” the project. The bond is a substitute for the land, and the contractor or owner is the principal, while a surety company authorized to do business in Massachusetts joins in as the required surety. This bond does not serve to dissolve existing liens, and the “target” bond (discussed below) does not serve to prevent future liens from piling up against the property, so it is crucial to know which bond is used for each situation. This “blanket” or “rolling” bond runs to the register of deeds (not any particular lienor) so it’s rather easy to spot what kind of a bond it is. The full text of the bond is set out in section 12.
Section 12 provides that “after the recording of any such [“blanket” or “rolling”] bond no lien under this chapter shall thereafter attach in favor of any person entitled to the benefit of such bond.” The statute speaks to the future (“no lien . . . shall thereafter attach”), so it’s important that this bond and the “target” bond (discussed below) are used properly for the purpose intended.
A “target” bond is one that is used to cleanse a title of a lien that has already been recorded against the property. It is quickly apparent that a section 12 bond will not accomplish this result, because as noted above bonds under that section dissolve future liens — ones that will be recorded after the bond has been recorded. Bonds under section 14, like their counterpart under section 12, have a principal (generally the owner) and a surety company authorized to do business in Massachusetts, but these bonds are “targeted” toward a particular lienor. Just like the “blanket” or “rolling” bond can’t be used to bond off a particular lien, the “target” bond can’t be used to prevent future liens from attaching to the title. The wrong bond will get the wrong result.
A few things about bonds and record activity after they’re recorded. As noted before in this article there are various time requirements that must be observed in order to create, perfect and preserve a mechanics’ lien. These include the recording of the lien itself and a statement of account, the bringing of an action in court and the recording of a complaint at the registry. Sometimes after a “blanket” or “rolling” bond, or a “target” bond have been recorded we see this very activity occurring in the record, as though the lienor believes that his or her lien will eventually be paid by the bonding company. However, in order for the lienor to proceed against the bond, the lienor still has to jump through all the same hoops because the bond now stands as a substitute for the land, or the security that is available for the payment of the claim, and getting to that security requires the same “journey.” This is important for claimants to understand. The filing of a bond for their benefit should not lull them into complacency, thinking that they just have to “wait for the check in the mail.”
1 There are other types of mechanics’ liens concerning other types of property, including personal property (automobiles, for example), intellectual property and so forth, but those liens are beyond the scope of this article. [Back to Text]
2 Subcontractors know when the window closes, even though they are not parties to the notice of substantial completion, because it is incumbent upon the general contractor and the owner to send out notices to the subcontractors and to other persons who have “identified” themselves as working on the job. [Back to Text]