How Contractors, Subcontractors, and Suppliers Can Protect Their Business Interests in Times of Financial Uncertainty

| Apr 6, 2020 | Business Law, Debtor/Creditor

By James M. Cailao and Caren W. Stanley

The financial fallout of the COVID-19 pandemic is just now beginning to be felt, and there is no doubt the ramifications of a depressed market will continue to resonate for the foreseeable future. Despite this uncertainty, the fact remains that contractors, subcontractors, and suppliers who have performed or contributed to improvements to real estate need to be paid for their work in order to ensure that their own business survives.

Both North Dakota and Minnesota have statutory mechanisms in place to protect the interests of those who have made such improvements by way of the North Dakota construction lien laws and Minnesota mechanic’s lien laws. Simply put, these liens allow for an encumbrance upon real property to compel payment for services, work and materials provided by those who have improved the subject real estate. In other words, the filing of a lien transforms the lien claimant into a secured creditor vs. remaining an unsecured creditor.

Because construction and mechanic’s liens are creatures of statute, it is essential that the lien claimant comply with all statutory requirements, including crucial timing and notice requirements. Failure to adhere to these requirements may invalidate the lien and prevent the claimant from enjoying the protections afforded under the lien statutes. For example, subject to certain exceptions, Minnesota has very strict pre-lien notice requirements for both general contractors as well as subcontractors and material suppliers, while North Dakota requires only written notice that a lien will be claimed be provided to the owner of the real estate at least ten days before the recording of the construction lien. Additionally, both the Minnesota mechanic’s lien statute and the North Dakota construction lien statute set forth specific requirements for the contents of the lien, as well as the method of filing and perfecting the lien.

Assuming a construction or mechanic’s lien has been timely and validly recorded – with all applicable pre-lien notice requirements fulfilled – the foreclosure process provides the lien claimant with a powerful method of obtaining payment on the amounts owed by potentially forcing a sale of the real property against which the lien has been filed, with the funds received from the sale of the property used to satisfy the outstanding balance. Lien claimants should take care to note that both North Dakota and Minnesota impose strict time limitations when a lien may be filed and/or a foreclosure proceeding may be commenced. The foreclosure of liens on real property is a complex process, and an experienced attorney can provide an invaluable resource in ensuring the construction or mechanic’s lien serves its intended purpose.

If you believe that you have a legal basis for asserting a construction or mechanic’s lien it is vital you act as quickly as possible to preserve your legal rights. An investment in the legal process now, even during this time of economic uncertainty, may pay dividends in the future. If you have further questions regarding the process, we recommend reaching out to an experienced attorney to discuss your legal rights in greater detail.

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