Can my company file a lien for cabinets supplied for a residential project going into foreclosure?
Full Question:
Answer:
There are timelines for filing a mechanics lien, depending on whether you have a general or subcontractor relationship with the owner. If a mechanics lien is unable to be filed, it may still be possible to bring a breach of contract action.
The general contractor may wait for as much as 1 year after the last of the labor and materials have been supplied to bring suit to enforce a lien. However, the rights of third parties who have an earlier recorded lien (such as a mortgage) could cut off one’s rights before the filing of the contractor's lawsuit. For example, if a house goes into foreclosure, the lender/bank may collect ahead of later recorded lien holders, and the later filed lienholders will only be able to collect out of any remaining proceeds. It is therefore recommended to record a lien before that lawsuit. A person has the option of either: (1) recording a Notice of Lien and Sworn Statement (the mechanic’s lien); or (2) recording a copy of the contract. But this must be done within 90 days of either: (1) completion of the overall project; or (2) 90 days from the date the general contractor himself or herself last performed labor or materials.
Subcontractors, laborers, and materialmen file their mechanics’ liens either: (1) 90 days from the date they last performed services or conferred materials; or (2) within 90 days of the completion of the project. However, these timelines don't apply if the owner has recorded a Notice of Completion. For residential property in which the owner enters into a direct contract with a sub or supplier, those persons must record their liens within 10 days of the Notice of Completion. This does not apply to the general contractor.
An unjustifiable failure to perform all or some part of a contractual duty is a breach of contract. A legal action for breach of contract arises when at least one party's performance does not live up to the terms of the contract and causes the other party to suffer economic damage or other types of measurable injury. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for the breach. Remedies for contractual breaches are not designed to punish the breaching party. The five basic remedies for breach of contract include the following: money damages, restitution, rescission, reformation, and specific performance. A money damage award includes a sum of money that is given as compensation for financial losses caused by a breach of contract. Parties injured by a breach are entitled to the benefit of the bargain they entered, or the net gain that would have accrued but for the breach. The type of breach governs the extent of damages that may be recovered. Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract. Parties seeking restitution may not request to be compensated for lost profits or other earnings caused by a breach. Instead, restitution aims at returning to the plaintiff any money or property given to the defendant under the contract. Plaintiffs typically seek restitution when contracts they have entered are voided by courts due to a defendant's incompetence or incapacity. Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds. Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach.
Please see the following from TN statutes:
66-11-145. Notice of nonpayment — Form of notice.
(a) Every remote contractor with respect to an improvement,
except one-family, two-family, three-family and four-family
residential units, shall serve, within ninety (90) days of
the last day of each month within which work or labor was
provided or materials, services, equipment, or machinery
furnished and for which the remote contractor intends to
claim a lien under this chapter, a notice of nonpayment for
the work, labor, materials, services, machinery, or
equipment to the owner and prime contractor in contractual
privity with the remote contractor if its account is, in
fact, unpaid. The notice shall contain:
(1) The name of the remote contractor and the address to
which the owner and the prime contractor in contractual
relation with the remote contractor may send communications
to the remote contractor;
(2) A general description of the work, labor, materials,
services, equipment, or machinery provided;
(3) The amount owed as of the date of the notice;
(4) A statement of the last date the claimant performed
work and/or provided labor or materials, services,
equipment, or machinery in connection with the
improvements; and
(5) A description sufficient to identify the real property
against which a lien may be claimed.
(b) A remote contractor who fails to provide the notice of
nonpayment in compliance with this section shall have no
right to claim a lien under this chapter, except this
section shall not apply to a certain amount or percentage
of the contract amount retained to guarantee performance of
the remote contractor.
(c) A notice of nonpayment provided in accordance with this
section shall not be considered notice required by
§ 66-11-115.
66-11-115. Liens by remote contractors.
(a) Every remote contractor shall have the lien provided
by this part for work or labor performed or materials,
services, equipment, or machinery furnished by the remote
contractor in furtherance of the improvement; provided,
that the remote contractor:
(1) Satisfies all of the requirements set forth in
§ 66-11-145, if applicable; and
(2) Within the time provided for recording sworn statements
set out in § 66-11-112(a), serves a notice of lien, in
writing, on the owner of the property on which the
improvement is being made.
(b) The lien shall continue for the period of ninety (90)
days from the date of service of notice in favor of the
remote contractor, and until the final termination of any
suit for its enforcement properly brought pursuant to
§ 66-11-126 within that period.
(c) The notice of lien may be in substantially the form
provided in § 66-11-112(d).
66-11-112. Preservation of priority of lien for
subsequent purchases or encumbrancers — Abandonment —
Lien on structure with water furnished by well — Form for
notice of lien.
(a) In order to preserve the priority of the lien provided
by this chapter as of the date of its attachment, as
concerns subsequent purchasers or encumbrancers for a
valuable consideration without notice of the lien, though
not as concerns the owner, the lienor, who has not recorded
the lienor's contract pursuant to § 66-11-111, is required
to record in the office of the register of deeds of the
county where the real property, or any part affected, lies,
a sworn statement of the amount for, and a reasonably
certain description of the real property on, which the lien
is claimed. The recording party shall pay filing fees, and
shall be provided a receipt for the filing fees, which
amount shall be part of the lien amount. Recordation is
required to be done no later than ninety (90) days after
the date the improvement is complete or is abandoned, prior
to which time the lien shall be effective as against the
purchasers or encumbrancers without the recordation. The
owner shall serve thirty (30) days' notice on prime
contractors and on all of those lienors who have served
notice in accordance with § 66-11-145 prior to the owner's
transfer of any interest to a subsequent purchaser or
encumbrancer for a valuable consideration. If the sworn
statement is not recorded within that time, the lien's
priority as to subsequent purchases or encumbrancers shall
be determined as if it attached as of the time the sworn
statement is recorded.
(b) A building, structure or improvement shall be deemed to
have been abandoned for purposes of this chapter when there
is a cessation of operation for a period of ninety (90)
days and an intent on the part of the owner or prime
contractor to cease operations permanently, or at least for
an indefinite period.
(c) Any other provision to the contrary notwithstanding,
any lien acquired under contract executed on or after
April 17, 1972, by virtue of § 66-11-141, may be filed
within ninety (90) days after completion of the structure
that is, or is intended to be, furnished water by virtue of
drilling a well.
66-11-111. Authentication and registration of lien.
Where the lienor's contract is in writing, and has been
acknowledged, or in lieu of acknowledgment is sworn to by
the prime contractor as to its execution by the owner, it
may be recorded in the lien book in the register of deeds
of the county where the real property, or any part of the
affected real property, lies. Subsequent purchasers or
encumbrancers for value shall be deemed to have notice of
the lien so long as the recorded contract sets forth the
contract price and describes the real property with
reasonable certainty.
66-11-143. Protection from unrecorded lien claims —
Notice of completion — Expiration of lien rights — Form
of notice of completion.
(a) In order to be protected from lien claims that have not
previously been recorded, as provided in § 66-11-111 or
§ 66-11-112, the owner or purchaser of improved real
property or their agent or attorney may, upon the
completion of the improvement, record in the office of the
register of deeds in the county where the real property or
any affected part of the real property is located a notice
of completion, or the owner or purchaser may require a
person or organization with whom the owner or purchaser has
contracted for the improvement to do so upon the completion
of the improvement, and the owner or purchaser of improved
real property or any other authorized party shall
simultaneously serve a copy of any notice of completion
recorded with the register of deeds on the prime
contractor; provided, however, that no copy of the notice
of completion is required to be served on any prime
contractor when the owner, or an entity controlled by the
owner, also acts as the general contractor, as defined in
§ 66-11-146(b)(1), in furtherance of the improvement to the
property. If a prime contractor is entitled to be served
with a copy of any notice of completion recorded with the
register of deeds, then the lien rights of the prime
contractor not so served a copy shall not be affected by
the notice of completion.
(b) The notice of completion shall contain the following:
(1) The legal name of the owner or owners of the real
property;
(2) The name of the prime contractor or prime contractors;
(3) The location and description of the real property;
(4) Date of the completion of the improvement;
(5) A statement that a transfer of ownership of all or a
part of the real property or an interest in the real
property and encumbrance on the real property, or a
settlement of the claims of parties entitled to the
benefits of this part, will take place not less than
ten (10) days after the date of the recording of the notice
of completion; provided, that the ten-day expiration for
lien claimants shall only apply to contracts for
improvement to or on real property, for one-family,
two-family, three-family and four-family residential units.
On all other contracts for improvement to or on real
property, the expiration time for lien claimants shall be
thirty (30) days after the date of the recording of the
notice of completion in the register's office;
(6) The name and address of the person, firm, or
organization on which parties entitled to the benefits of
this chapter may serve notice of claim;
(7) Acknowledgment by the person filing the notice, or by
that person's agent or attorney; and
(8) The name and address of the preparer of the instrument
in compliance with § 66-24-115.
(c) The register of deeds shall make a permanent record of
all notices of completion filed in the office of the
register and the records shall be available for public
examination. The register of deeds shall be entitled to the
fees, provided in § 8-21-1001, for the register's services
in receiving and maintaining notices of completion required
in this section.
(d) If a remote contractor has served a required notice of
nonpayment pursuant to § 66-11-145, then any party
recording a notice of completion shall simultaneously serve
a copy of the notice of completion on the remote
contractor. The remote contractor shall have thirty (30)
days from the date of the recording of the notice of
completion to serve a written notice in response to the
notice of completion in accordance with subsection (e). The
lien rights of a remote contractor that has not been served
a copy, shall not be affected by the notice of completion.
(e)(1) Any prime contractor or remote contractor claiming a
lien under this chapter on the property described in the
notice of completion, who has not previously registered the
person's contract as provided in § 66-11-111 or registered
a sworn statement as provided in § 66-11-112 and served a
copy of the registration to the owner, shall serve written
notice, addressed to the person, firm or organization and
at the address designated in the notice of completion for
receiving notice of claim, stating the amount of the claim
and certifying that the claim does not include any amount
owed to the claimant on any other job or under any other
contract.
(2)(A) For improvements to or on real property for
one-family, two-family, three-family and four-family
residential units, the written notice shall be served not
more than ten (10) days from the date of the recording of
the notice of completion in the register's office, and if
notice is not served within that time, the lien rights of
the claimant shall expire.
(B) For all other contracts for improvements to or on real
property, the written notice shall be served not more than
thirty (30) days from the date of the recording of the
notice of completion in the register's office, and if
notice is not served within that time, the lien rights of
the claimant shall expire.
(f) Any notice of completion recorded as provided in this
section before the completion of the improvement or the
demolition is void and of no effect whatsoever.
(12) "Prime contractor" means a person, including a land
surveyor as defined in § 62-18-102, a person licensed to
practice architecture or engineering under title 62,
chapter 2, and any person other than a remote contractor
who supervises or performs work or labor or who furnishes
material, services, equipment, or machinery in furtherance
of any improvement; provided, that the person is in direct
privity of contract with an owner, or the owner's agent, of
the improvement. A "prime contractor" also includes a
person who takes over from a prime contractor the entire
remaining work under such a contract;
(13) "Real property" includes real estate, lands, tenements
and hereditaments, corporeal and incorporeal, and fixtures
and improvements thereon;
(14) "Remote contractor" means a person, including a land
surveyor as defined in § 62-18-102 and a person licensed to
practice architecture or engineering under title 62,
chapter 2, who provides work or labor or who furnishes
material, services, equipment or machinery in furtherance
of any improvement under a contract with a person other
than an owner;
