Steps and Requirements for Successfully Obtaining and Preserving Mechanic’s Lien and Public Improvement Lien Rights
The following information is designed to inform you about specific requirements of the Iowa Code for the preservation and perfection of mechanic’s liens and public improvement liens. There are several statutory notices, deadlines, timelines and other requirements that you should be aware of whenever acting as a general contractor, subcontractor or materials supplier. Additionally, you should be aware that the mechanic’s lien law (Iowa Code Chapter 572) was recently amended by the Iowa legislature and has undergone substantial changes.
The information set forth in this letter is not an exclusive summary of all compliance requirements, but is intended to highlight several critical factors. You should always consult with an attorney regarding any question you may have on a specific matter, as the unique facts and circumstances of each project will have substantial bearing on your best course of action.
Mechanic’s Liens – Iowa Code Chapter 572
Mechanic’s liens provide security for work done on private real property that is not a public improvement.
Deadlines and timelines are critical to ensure mechanic’s lien rights. You should always establish your start date for any work on a project with dated photographs of the real estate, a signed agreement, employee time cards, and any other conclusive evidence that may be available. Not doing so could result in a loss of priority or litigation regarding priority. Similarly, establishing the end date is important for issues of collateral security, filing date, perfection after the statutory period, and foreclosure. The concept of “substantial completion,” may also be important for these issues; documentation of the stages of construction, work classified as maintenance, or a significant period with no construction is crucial. Be especially vigilant about taking any security, such as a mortgage, a personal guarantee, a deposit, or share in a company, which could be interpreted as “collateral security” during the course of the project; taking any collateral security prior to the completion of your work will result in the loss of lien rights, despite a lack of intention to do so. If a lien is not filed within 90 days, the possibility for forfeiture is greatly increased. A reliable system for tracking filing deadlines is necessary. Any notices received pursuant to section 572.28, which require foreclosure within 30 days, also must be tracked. Similarly, the two-year requirement for foreclosure must also not be missed.
You must perform proper due diligence to ensure that each contract for work that you enter into is made with the current owner of the real estate. Contracts with executory purchasers (buyers who have not yet closed on their acquisition of the subject property) will likely not afford you protection under the mechanic’s lien laws. Your contract must be with the current owner of the real estate (if you are the general contractor).
Lien waivers often contain overbroad language, which could result in a complete waiver of all past, present, and future lien rights. You should have us review all requested lien waivers, or alternatively, only use a form that we have drafted or pre-approved.
The mechanic’s lien statue requires specific notices. In the case of owner-occupied dwellings, sections 572.13 and 572.14 spell out the notices that must be given either in the written contract or otherwise delivered if there is no written contract. These notices should be typed in bold, capital letters, and reproduced exactly as they are written in the statute.
The Code defines an owner-occupied dwelling as “the homestead of an owner…and actually occupied by the owner or the spouse of the owner, or both. ‘Owner-occupied dwelling’ includes a newly constructed dwelling to be occupied by the owner as a homestead, or a dwelling that is under construction and being built by or for an owner who will occupy the dwelling as a homestead.”
The notice under § 572.13 must be used whenever you, as a general contractor, enter into a contract with an owner-occupier and you will use subcontractors for the project. The following exact text must be placed in the written contract: “Persons or companies furnishing labor or materials for the improvement of real property may enforce a lien upon the improved property if they are not paid for their contributions, even if the parties have no direct contractual relationship with the owner.”
The notice under § 572.14 must be used whenever you, as a subcontractor, do work on an owner-occupied dwelling. For the purposes of determining when something is an owner-occupied dwelling, it would be best to error on the side of caution, especially when the general contractor has a contract, or any dealings, with an individual who will eventually occupy a dwelling on the lot. This notice must be served in one of the three following ways: (1) by delivering it to the owner or the owner’s spouse personally; (2) by mailing it to the owner by certified mail with restricted delivery and return receipt to the person mailing the notice; or (3) by personal service as provided in the rules of civil procedure. The following exact text must be used: “The person named in this notice is providing labor or materials or both in connection with improvements to your residence or real property. Chapter 572 of the Code of Iowa may permit the enforcement of a lien against this property to secure payment for labor and materials supplied. You are not required to pay more to the person claiming the lien than the amount of money due from you to the person with whom you contracted to perform the improvements. You should not make further payments to your contractor until the contractor presents you with a waiver of the lien claimed by the person named in this notice. If you have any questions regarding this notice you should call the person named in this notice at the phone number listed in this notice or contact an attorney. You should obtain answers to your questions before you make any payments to the contractor.” This notice should be given when work begins.
The language of the statute is ambiguous about when this § 572.14 notice should be served. Ideally, it would be served at the commencement of your work. However, the statute says, “In the case of an owner-occupied dwelling, a mechanic’s lien perfected under this chapter is enforceable only to the extent of the balance due the principal contractor by the owner-occupant prior to the owner-occupant being served with the notice…”. At commencement, there is arguably no balance due, because no work has been done. However, it is also arguably true that all of the contract balance is due at this time pending completion of the work. Waiting until completion to send the notice risks finding out that some, most, or all of the contract has already been paid to the principal contractor during the progress of the work, and thus, there is no balance due. Accordingly, we believe the safest course of action is to serve this notice when you start work.
Section 572.33 has additional notice requirements that must be followed whenever you provide materials to a subcontractor. This section does not apply to “single-family or two-family dwellings occupied or used or intended to be occupied or used for residential purposes.” The notice required here is required to be given to the original contractor within 30 days of the first time the materials were furnished. The notice must contain the name, mailing address, and telephone number of the person furnishing the labor or materials, and the name of the subcontractor to whom the labor or materials were furnished. This notice must be attached to any lien claim, so it is important that records are kept of the notice, as well as documentation of the timely delivery of the notice.
Failure to follow these three statutory notices will result in significant forfeiture or lengthy litigation, so overuse of these notices is to your advantage. There is no penalty for overusing the notices. Thus, in any contract where you are the general contractor, we recommend always using the section 572.13 notice. The notice in section 572.14 should be used more sparingly, but any time there is a possibility the project would involved owner-occupied dwellings and you are in a subcontractor role, this notice should be given to the owner-occupier at the time work begins. The section 572.33 notice is especially important. It should be given any time you are a materials supplier to a subcontractor. This notice has no specific statutory language, but does have the requirements that are listed above.
Public Improvement Liens – Iowa Code Chapter 573
Public Improvement Liens protect work done by contractors, subcontractors, and those providing materials to the contractors from nonpayment for their work on public improvements. Public improvements are defined as improvements where the cost is payable from taxes or other public funds. In the case of nonpayment, the statute allows someone entitled to payment to collect first from retained funds or if no retained funds remain, secondarily from the bond.
There is one important exception to the list of groups entitled to the protections of this chapter. Persons/entities furnishing materials to a subcontractor who in turn is only furnishing materials for the project (i.e. a supplier of a supplier) are not entitled to any protection under Iowa Code Chapter 573. Thus, if you find yourself in this position, you should consider some additional security to protect against the risk of nonpayment.
In order to be entitled to the protection of Iowa Code Chapter 573, you must comply with the following requirements. If material is furnished to someone other than the general contractor, a notice must be provided to the general contractor no more than 30 days after the material was furnished. Alternatively, notice may be given through itemized invoices given to the contractor throughout the progress of the work. Drafts of form letters for these two options are attached at the end of this letter, and labeled Notice Options #1 and #2 respectively. The notices must state the amount, kind and value of the material furnished. For projects where there is only one instance of material furnished, the single notice may be the simplest and best course of action, but where material is furnished over the course of time, itemized invoices may be preferred. The invoices should be itemized, and state the amount, kind, and value of material furnished. In this regard, the more detail which is provided, the better. Both notices and invoices should also state to whom the material was furnished. In addition, we recommend including the following language: “By this [invoice/notice] [COMPANY] informs [General Contractor] that it has provided materials to [subcontractor] and that it is entitled to a lien on any retained funds or any bond obtained for this project in the event of nonpayment.”
To obtain a lien on a public improvement, it is imperative that the following deadlines are followed:
Claims must be filed 30 days following completion and acceptance of the project. If a claim is not filed within this deadline, there is a substantial risk that there will be no remedy under chapter 573.
- Claims must be filed with the “office, board, or commission authorized by law to let contracts for such improvement”
- They must contain an itemized, sworn, written statement of the claim for the material, service, or transportation provided.
- In the case of a highway improvement by the county, the claim must be filed with the county auditor.
- If the claim is for a farm-to-market highway, and is paid for with farm-to-market funds, claims must be filed with the auditor of the state department of transportation.
If a claim needs to be made, please let us know well before the 30 day deadline so we can ensure compliance with the technical requirements of the statute.
- If a claim is filed after the 30 days, it is only enforceable to the extent the full contract price has not been paid.
These claims may have no value whatsoever because retained funds can be released to the general contractor after 30 days if no claims have been filed.
Actions to enforce claims must be brought with in 60 days (but not before 30 days) following completion and acceptance.
- These actions must be brought in the district court in the county where the improvement is located.
- These actions will adjudicate the rights to the retained funds or the bond for the project.
- If the contractor serves notice, they can force the subcontractor to file an action with in 30 days after the notice or rights to payment from retained funds are forfeited
- Any action filed must have the board or officer letting the contract, the principal contractor, all claimants for labor and material who have filed a claim, and the surety on any bond joined as parties to the action.
Lastly, it has not escaped us that the above analysis is overly complex. But, the law is even more complex, and we have strived to make this letter as simple, straightforward and user friendly as possible.
As always, please do not hesitate to contact us to answer any questions regarding these procedures or to prepare mechanic’s liens, public improvement claims, or related actions.
NOTICE OPTION #1
CITY, ST ZIP
RE: Notice as required by Iowa Code § 573.15 of material furnished on __________ project
To Whom It May Concern:
You are hereby notified that [COMPANY] has begun furnished and/or transported materials pursuant to its contract with [SUBCONTRACTOR].
Pursuant to the requirements of Iowa Code § 573.15, this notice shows the amount, kind, and value of the material furnished for use upon the above-mentioned public improvement.
[COMPANY] has supplied [QUANTITY/AMOUNT] of [TYPE] with a cost of [DOLLARS].
[NAME OF SENDER]
NOTICE OPTION #2
CITY, ST ZIP
RE: Notice as required by Iowa Code § 573.15 of material furnished on __________ project
To Whom It May Concern:
You are hereby notified that [COMPANY]. has begun furnishing and/or transporting materials pursuant to its contract with [SUBCONTRACTOR].
Pursuant to the requirements of Iowa Code § 573.15, we will be sending itemized invoices during the progress of the work. These invoices will show the amount, kind, and value of the material furnished for use upon the above-mentioned public improvement.
[NAME OF SENDER]